Thursday, June 26, 2003

Amateur tax cut theorizing

Jerome Armstrong makes a very interesting proposal (based on an idea from Robert Reich) about payroll taxes that Governor Dean or any of the other Dem candidates might want to consider:
Dean's already argued for the tough medicine, in raising the cap on FICA wages. Why have a cap at all? Let me reiterate the post I made earlier, dumbing down Reich's idea. Make FICA applicable to all wages, and further, eliminate the first 15-20K from having to pay any FICA payments at all. That's right, a tax-cut. In essence, everyone making under ~$110k (and this is single wage earners, for married couples both working, it'd be ~$220k) would recieve a tax break, with those at ~$20k annually seeing their payroll taxes eliminated, and those individuals above ~$90k (effectively ~$110k, because the first ~$20k is eliminated) and couples above $220k seeing their taxes raised. This would stimulate the economy, as anyone's first $20K goes right into spending; and at the same time, ensure the long-term stability of social security, by raising the taxes of the top ~10% wage-earners. This economic agenda doesn't have to be that complicated: Candidate A, a Democrat, pledges to cut the payroll taxes of all individuals earning under $110k, and all married couples both working and earning under $220k. Candidate B, a Republican, claims that 90% of the people don't deserve a tax-cut, defends the elite, the rich, and... loses.
I am far from being an expert on these things, but it seems to me that this proposal would actually result in a substantial cut for everyone who pays payroll taxes (while that cut would obviously be offset by an increase for those above the current cap once it was removed). However, Jerome misses another interesting aspect of this proposal: the additional revenues generated by the elimination of the cap could be used to lower the overall FICA rate for everyone. If Dean, or any other Dem candidate, were to make this proposal, he wouldn't just be offering a 100% payroll tax cut on the first $20,000. He could also offer an X% cut for everyone on the next $65,000 (I'm not smart enough to do the math to figure out what X would be). In other words, a proposal like this could (1) offer a substantial tax cut to 80-90% of the electorate while (2) saving social security in perpetuity and (3) put Bush in the awkward position of having to oppose said substantial tax cut in order to protect the interests of that top 10% who would now have to pay FICA on their extra income. Am I crazy to think that this might just work? Or would the monied interest be so offended by the concept that they would kill it before it even saw the light of day? Why, exactly, IS there a cap on FICA in the first place?

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