You can't keep a bad meme down. In the Dec. 16 Washington Post, Jonathan Weisman reports that the Bush administration is suddenly beguiled by the notion that poor people don't pay enough taxes. This peculiar idea was floated in a Nov. 20 Wall Street Journal editorial headlined, "The Non-Taxpaying Class," and Chatterbox has been charting its progress ever since. (Prior to the Journal editorial, Nicholas Lemann, in a New Yorker piece dated Feb. 19, 2001, attributed the meme to Rep. Jim DeMint, a South Carolina Republican. DeMint elaborates here.)
Since most people are liable to consider progressive taxation a good thing, not a bad thing, a Republican rallying cry of "Tax the Poor!" seems likely to prove almost as much of a loser as "Resegregate the Races!" Even if you think progressive taxation is evil, however, Chatterbox has already explained (here and here) that the federal income tax's progressivity is largely offset by other federal taxes, especially the notoriously regressive payroll tax, and that when you figure in state and local taxes the tax bite is probably higher for many poor people, percentagewise, than it is for the rich.
In exploring the tax-the-poor option, federal policy-makers have little compunction about ignoring the state tax burden—not our department!—but they do feel obliged to find some justification for ignoring the payroll tax. At a Dec. 10 conference sponsored by the American Enterprise Institute, Lawrence Lindsey, the departing director of the White House National Economic Council, offered the breakthrough concept that the Social Security portion of the payroll tax should be removed from tax distribution tables because it more closely resembles a Christmas Club contribution than an actual tax:
The way Social Security is set up, is when I pay another dollar for Social Security tax, I buy an explicit, legislated amount of benefits. … I pay the money in, I get the money out, and that's all there is to it. Now, as a first pass, therefore, it wouldn't make sense to me to call the OASDI contribution a tax, even though we all do. … I can't see a logical reason why we should include the Social Security OASDI portion of that, in its entirety, as a tax. I think we should write our [distribution] tables without it there. It is purely a private good.
The flaw in this reasoning is that the Social Security tax isn't necessarily returned in full to the payer. A year ago, the Bush White House's Social Security commission pointed out that workers who earn the maximum amount taxed (about $80,000) can expect a real annual return on their Social Security "investment" of minus 0.72 percent. That makes Social Security a tax—albeit a clumsily designed one.
Yet the meme marches on. The Post reports that economists at the Treasury Department are "drafting new ways to calculate the distribution of tax burdens among different income classes," i.e., looking for ways to rig the numbers, "to highlight what administration officials see as a rising tax burden on the rich and a declining burden on the poor." The Council of Economic Advisers will offer up some sort of tax-the-poor rationale in its forthcoming "Economic Report to the President," according to the Post. At the aforementioned Dec. 10 AEI conference, the CEA's chairman, R. Glenn Hubbard, complained, "The increasing reliance on taxing higher-income households and targeted social preferences at lower incomes stands in the way of moving to a simpler, flatter tax system."
Another Bushie who may be flirting with the idea of raising poor people's taxes is J.T. Young, deputy assistant secretary of the Treasury Department. In a Dec. 3 op-ed for the Washington Times, Young wrote:
We are seeing the end-result of class warfare: A shrinking group is shouldering virtually as large a tax burden as [has] ever been supported by the nation. … The equation of increasing spending and decreasing those who pay for it is not sustainable. This false promise was recently papered-over by an economic boom that masked the long-term problem. The bills that are being so freely assigned to others are going to begin coming home soon to the rest of the nation as well.
Will John Snow, the new Treasury nominee, and Stephen Friedman, the Robert Rubin-esque new director of the National Economic Council, hop on the bandwagon? Meme Watch is all over them like a cheap suit.
Meme Watch archive:
Nov. 27, 2002: "Introducing the Meme Watch"