Hendrik Hertzberg offers a compelling discussion of tax policy in this week's New Yorker. He makes the case that the time has passed for our most regressive federal tax -- the payroll tax. In fact, he argues, why are we taxing jobs at all? Don't we, as a society, want people to work and other people to put people to work? If we do, then why penalize both classes through the payroll tax?
Well, that reminds me of a story. A new and young husband caught his wife cutting off the end of the Easter ham before baking it and, feeling brave, he asked her why she did that. "Because my mother always did." So on Thanksgiving, he remembered Easter and asked his mother-in-law why she always cut off the end of the Easter ham before baking it. "Because my mother always did." On Christmas, Grandma showed up and by now the whole clan was bubbling with curiosity. The question was put to Grandma, "Why do you always cut off the end of the Easter ham before baking it?" She replied,"What? Oh, I used to do that years ago because my baking pan was too small, but then I got a bigger pan and I don't do it anymore."
Social Security and Medicare were originally funded by payroll taxes and sold to the wary public as a sort of "insurance" program. Thus, if you wanted to draw out, you had to pay in. Benefits were also tied to contributions, not just need. But from the beginning these programs were never insurance and the taxes collected have, for all practical purposes, been treated as general revenues for the government to raid during demographically booming years (the 90s) and creating a big fat looming issue coming due in about 15-20 years or so as baby boomers move out of their peak earning years and into retirement.
The payroll tax is a tax on everyone who works (regardless of income level, except that it actually phases out for high earners) and on everyone who employs anyone who works. As such, it is both the most regressive and most counterproductive tax that I can conceive of. We hit everyone except the rich with this tax and we hit everyone who wants to put people to work with this tax. Talk about bad policy.
Nonetheless, Social Security and Medicare are not going away anytime soon, nor should they. Hertzberg makes the very sound suggestion that these programs be funded not by taxing socially useful activity like work, but by taxing socially undesireable products and activity like dirty energy or using dirty energy especially in a wasteful manner. This is a great idea that needs to be taken even further.
The new healthcare plan should be funded by a tax on unhealthy foods like ice cream, cheese, fried potatos, etc. Schools should be funded by a tax on inefficient housing (huge, single family, energy leaking McMansions, for example). Police departments could be funded by taxes on alcohol and firearms. Police budgets could be slashed and additional revenues raised by taking a more liberal approach to legalizing recreational drugs, subject to heavy taxation and regulation.
In short, there are a lot of things that as a society we find socially undesireable but we are willing to allow people to choose to do. Let's fund the safety net programs we need by allowing, but discouraging these activities.
Well, that reminds me of a story. A new and young husband caught his wife cutting off the end of the Easter ham before baking it and, feeling brave, he asked her why she did that. "Because my mother always did." So on Thanksgiving, he remembered Easter and asked his mother-in-law why she always cut off the end of the Easter ham before baking it. "Because my mother always did." On Christmas, Grandma showed up and by now the whole clan was bubbling with curiosity. The question was put to Grandma, "Why do you always cut off the end of the Easter ham before baking it?" She replied,"What? Oh, I used to do that years ago because my baking pan was too small, but then I got a bigger pan and I don't do it anymore."
Social Security and Medicare were originally funded by payroll taxes and sold to the wary public as a sort of "insurance" program. Thus, if you wanted to draw out, you had to pay in. Benefits were also tied to contributions, not just need. But from the beginning these programs were never insurance and the taxes collected have, for all practical purposes, been treated as general revenues for the government to raid during demographically booming years (the 90s) and creating a big fat looming issue coming due in about 15-20 years or so as baby boomers move out of their peak earning years and into retirement.
The payroll tax is a tax on everyone who works (regardless of income level, except that it actually phases out for high earners) and on everyone who employs anyone who works. As such, it is both the most regressive and most counterproductive tax that I can conceive of. We hit everyone except the rich with this tax and we hit everyone who wants to put people to work with this tax. Talk about bad policy.
Nonetheless, Social Security and Medicare are not going away anytime soon, nor should they. Hertzberg makes the very sound suggestion that these programs be funded not by taxing socially useful activity like work, but by taxing socially undesireable products and activity like dirty energy or using dirty energy especially in a wasteful manner. This is a great idea that needs to be taken even further.
The new healthcare plan should be funded by a tax on unhealthy foods like ice cream, cheese, fried potatos, etc. Schools should be funded by a tax on inefficient housing (huge, single family, energy leaking McMansions, for example). Police departments could be funded by taxes on alcohol and firearms. Police budgets could be slashed and additional revenues raised by taking a more liberal approach to legalizing recreational drugs, subject to heavy taxation and regulation.
In short, there are a lot of things that as a society we find socially undesireable but we are willing to allow people to choose to do. Let's fund the safety net programs we need by allowing, but discouraging these activities.
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