Tuesday, April 28, 2015

Reform Social Security by Eliminating the Payroll Tax?

Over at U.S. News, Dean Clancy argues that eliminating the payroll tax – and thus paying for social security out of general tax revenues – simplifies the problem of how to fix the program.

Why not supplant the payroll tax altogether, and as soon as possible? The payroll tax is the biggest tax most Americans pay, and regressive. It falls hardest on low-wage workers. Eliminating it would provide meaningful relief to every American wage-earner, with the greatest relief going to those who need the the help the most. Abolishing it would be economically beneficial and politically popular. To avoid increasing the deficit, we could raise or impose other taxes that are less regressive – although, to be honest, I’m not sure we really need to. If anything, America’s less-than-stellar economy could stand a tax cut right now, and what better kind of tax cut than one that reduces burdens on job creation?

I like $800 billion annual tax cuts as much as the next guy, but this just seems crazy to me.


JoeTheEconomist said...

Andrew, It is crazy. There is no tax cut. He simply wants to shift payroll taxes to income taxes. There is no tax-cut. The fact that he is promoting his idea as a tax-cut is telling about the writer.

Andrew G. Biggs said...

He actually argues for, at least temporarily, NOT backfilling with income tax revenues and just having it as a net tax cut. That strikes me as a bit nutty. Very quickly they would have to raise income taxes to fill the gap, which would be a pretty big increase.

WilliamLarsen said...

Increasing taxes is also bad politics, but a bit more politically acceptable, because there’s less pain per person: it’s spread over a larger population. There are about 59 million retirees, but 144 million workers.

Joe the Economist is correct, but more importantly, paying the payroll tax over working life time is for different from paying general income taxes over your life time. Either way if taxes get to high that taxpayers bulk, benefits get cut. But if everyone accepts higher income taxes, then retirees will pay more for their benefits which is in effect a benefit cut while workers pay more their entire life.

This writer cannot even solve a fifth grade math story problem.