Still More Liberal Economists/Wonks Oppose Payroll Tax

I just read the most fascinating article, from HuffPo of all places! It's called "Reality Check" and was written by Marshall Auerback and L. Randall Wray. Auerback works with the Roosevelt Institute and Wray is research director for the Center for Full Employment and Price Stability. In their arguments in support of the payroll tax holiday -- and alternative funding mechanisms for Social Security altogether -- they cite authors such as James K. Galbraith and Warren Mosler.

So what did Auerback and Wray have to say? Many of the same things that have historically been argued against the payroll tax, like the fact that it's regressive. They also use some less historical arguments, such as funding pensions with a payroll tax paid by businesses and workers instead of general public funds leaves U.S. companies at a competitive disadvantage in a global market. And it's still the case that framing Social Security as an earned benefit, as though payouts directly correlated to contributions, instead of a generational social contract actually provides the conservatives ammunition against it. It is precisely the dedicated funding mechanism that allows critics to make dire predictions about shortfalls, etc.:

More importantly, the tax is almost unique among federal taxes -- it is "dedicated" to a single program. That allows both "money's worth" (comparing taxes paid to individual benefits received) calculations as well as calculations of "Armageddon day" (when revenues fall short of benefit payments). It also has led to completely unnecessary tax hikes over the years, from a tax of about 2% of wages on the parents of baby-boomers to the current 6.2%. These current tax rates have nothing to do with current benefit payments -- Greenspan pushed them up far beyond what was necessary on the argument that we needed "advanced funding" for benefits that would be paid 50 or 75 years into the future.

...Without a "dedicated" payroll tax, such calculations would never be done because they could not be done. A "hypothecated tax" supposedly designed to safeguard Social Security's long-term viability, then, actually provides the political means to destroy it.

...By tying Social Security's fate to the payroll tax, progressives commit themselves to battling over financial "sustainability" and to difficult political choices that come down to raising payroll taxes or cutting benefits.


Definitely read section nine, wherein they discount most of the dire projections anyway. They have been writing on this issue while, apparently; their preference is to eliminate the payroll tax entirely:

Eliminating the payroll tax ends the irrelevant "money's worth" and "sustainability" calculations. It also relaxes the fiscal stance by an amount that is probably sufficient to remove the fiscal drag that prevents the economy from operating at full employment. The "holiday" is a move in the right direction with regard to loosening the fiscal stance and tax relief is well-targeted to workers and firms. We can begin with the 2 percentage point reduction and move forward to greater reductions. It is possible that our calculations are wrong. If so, it will be necessary to increase taxes or reduce spending when -- and if -- our economy finally recovers. When that becomes necessary, there are better taxes than a payroll tax that punishes employers and especially lower and middle class workers.


More fancy talk for "the payroll tax is regressive." They also point out the overwhelming popularity of the program and are optimistic that would protect it from overzealous deficit hawks. We shall see, I guess, but it really is rather untouchable, especially as the baby boomer cohort -- the largest in the program's history -- enters the system.