Ross Douthat says the payroll tax is "our enemy." He says it "deserves to be pared away into extinction." Why exactly? I keep going back to his column and I'm still not sure.
He thinks its origins are sinister:
Payroll taxes are a relic of New Deal Machiavellianism: by taking a bite of every worker's paycheck and promising postretirement returns, Franklin Roosevelt effectively disguised Social Security as a pay-as-you-go system, even though the program actually redistributes from rich to poor and young to old.I don't know how programs that openly and avowedly collect money from mostly younger people in the workforce and give the money to the elderly, particularly the retired elderly, can be said to have a disguised purpose of wealth transfer from "young to old," but maybe I'm just too naive a liberal to see the sinister goings-on.
And, um, the payroll tax transfers wealth "from rich to poor"? Because of the cap on income subject to the Social Security (FICA) tax (for 2013, wages above $113,700 are not subject to FICA tax), and because capital gains and carried interest aren't subject to payroll taxes at all, those in the top 1% pay 1.7% of their income in payroll taxes, as opposed to 7% for the rest of us. (High earners will pay increased Medicare taxes starting this year, as a result of the health care law, but not enough to make up the difference.)
So how do payroll taxes transfer wealth "from rich to poor"? Perhaps Douthat defines "rich" as "employed" and "poor" as "unemployed," whether as a result of job loss or retirement. Or perhaps he's feeling sorry for the sainted wealthy who are "job creators," and who thus pay the employer share of the payroll tax.
So what does Douthat see as a solution? Well, he says this:
All of the components of a sensible Social Security reform -- means-testing for wealthier beneficiaries, changing the way benefits adjust for inflation, a slow increase in the retirement age -- become easier if the program is treated as normal safety-net spending rather than an untouchable entitlement with a dedicated funding stream.First thought: If you're complaining that Social Security and Medicare transfer money from "rich to poor," why are you rooting for "means-testing for wealthier beneficiaries"? Wouldn't that make the programs even more of a transfer from rich )or at least non-poor) to poor?
But the rest of what Douthat says here explains why he doesn't like the payroll tax. He doesn't like the payroll tax because it helps create public support for Social Security and Medicare (in his words, it helps makes them "untouchable"). People are willing to have these big-government programs because they see a dedicated tax and thus perceive a connection between taxes paid and benefits received. We can't have that! This is America! The citizenry has to believe that all tax money is poured down a rathole!
I'm not an economist, so maybe Douthat really makes a solid, well-reasoned economic or policy argument for getting rid of the payroll tax, and I just don't grasp it. But I don't know what that argument is.