I am nowhere near informed enough to offer any intelligent commentary on economic policy, but I am pretty good at political analysis. And so instead of focusing on the economic part of Bruce Bartlett’s argument against cutting payroll taxes, I want to focus on the political implications of what Bartlett says in defense of the payroll tax:
But the biggest problem with cutting the payroll tax is that it isn’t really a tax at all. A tax, by definition, is a compulsory payment for which no specific benefit is received in return. This is not true of Social Security. The vast bulk of workers get back all the money they put into Social Security in the form of a cash benefit in retirement and most get a substantial return. (See this Congressional Budget Office study.) That’s why Franklin D. Roosevelt always insisted that the money withheld from workers’ paychecks for Social Security was not a tax but a “contribution.”
And I think this – along with the fact that people like to get money – is directly related to why Social Security is an enduring, incredibly popular program. Among many other things, part of the problem liberals face with expanding the welfare state is that it is incredibly easy to inveigh against tax increases. And part of the reason why it’s incredibly easy to inveigh against tax increases is that there doesn’t seem to be much of a logical connection between what you pay into the system and what you get out of it. Especially when – by and large – what you do get out of it is a little abstract; as we’re seeing in the Virginia gubernatorial race, it’s very difficult to defend proposed tax increases with cries of “what about the infrastructure!” Very few people make the connection between paying their income taxes and having decent roads, and even fewer people make the connection between paying their income taxes, and having clean water or clean air or a reasonably competent regulatory state.
Of course, barring some collective awakening of political consciousness among the voting public (think Childhood’s End except less telekinesis and more subscriptions to the New York Times), we’re going to be stuck with a political culture in which it is incredibly easy to drum up anti-taxation sentiment. That said, if the Obama administration is actually cognizant of our long-term fiscal challenges (and I think that it very much is), then it will eventually have to sell a tax increase to the American public. I think the best way to do that is to propose a tax which – like the payroll tax – has a direct relationship to benefits received. Ideally, we would have seen something like this with health care reform: you pay a flat rate to the federal government, and in return, you are guaranteed health insurance and some level of subsidies to pay for it.
A payroll tax-style arrangement is not only simpler and less intrusive than the alternatives, but it would also help lessen the vulnerability of these reforms to demagoguery, as each voter can see the tangible impact the legislation – and the tax – has on their lives.