Meme Watch: A Payroll Tax Rise?
A plausible scenario for raising taxes on the poor.
The "tax the poor" meme continues to lie low, refusing to come out and fight like a man.
For those just tuning in: The Nov. 20 Wall Street Journal carried an editorial arguing that poor people should pay more taxes. (The idea appears to have originated with Rep. Jim DeMint, a South Carolina Republican, though even he didn't stoop to calling people who earn $12,000 a year "lucky duckies," as the Journal did, because their income is taxed at only 4 percent.) Chatterbox wrote two (possibly superfluous) columns explaining why poor people shouldn't pay more taxes. (To read them, click here and here.) Former Attorney General Ed Meese hopped onto the tax-the-poor bandwagon in a Nov. 26 appearance on Fox News' Hannity & Colmes. The Bush administration lent a sympathetic ear. On Dec. 3, J.T. Young, deputy assistant secretary of the treasury, published a Washington Times op-ed that flirted with the tax-the-poor idea. At a Dec. 10 conference hosted by the American Enterprise Institute, Glenn Hubbard, chairman of the Bush White House's Council of Economic Advisers, said, "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," which is bureaucratese for "Tax the poor!" At the same conference, Lawrence Lindsey, departing director of the White House's National Economic Council, invited the audience to think of the Social Security portion of the payroll tax as not being a tax at all, but rather something like a Christmas Club contribution. This bold reconceptualization could justify omitting the highly regressive payroll tax from any statistical analysis of how the income-tax burden is distributed among different income groups, which in turn could make it easier to justify raising taxes on the poor. Indeed, on Dec. 16 the Washington Post reported that the Treasury Department had already begun to massage the tax-distribution tables.
And then … silence. In unveiling its new proposed tax cut, the Bush administration has been loath to concede that it's tilted toward the rich, let alone that the White House harbors any long-term ambition to raise taxes on the poor. Instead of making poor people pay for the cuts, the plan is to grow the budget deficit. But in the Jan. 14 New York Times, Edmund Andrews shows where this may lead:
The most important question may well be the one that is most avoided: the likelihood that the tax cuts will create huge deficits for years to come, even as the nation girds for a costly war with Iraq and just a few years before the costs of Social Security and Medicare are due to escalate sharply because of the aging of the baby-boom generation.
If those costs end up being paid for by adding to payroll taxes—which are imposed at the same rate for rich and poor alike and then mostly capped when a person's income exceeds $87,000—the tax burden would shift dramatically onto the shoulders of middle-income workers.
Since all employed people pay the payroll tax, increasing it would also hammer the working poor. If it happens, look for the Bushies to argue that a payroll tax increase isn't a tax increase because, as Larry Lindsey has already explained, the payroll tax isn't a tax.
Timothy Noah is a former Slate staffer. His book about income inequality is The Great Divergence.