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Go Home The Payroll Tax Cut And The Lucky Duckies

TIMOTHY NOAH NOVEMBER 28, 2011

The Payroll Tax Cut And The Lucky Duckies

BY TIMOTHY NOAH

The Democrats want to extend the one-third payroll tax cut. The Republicans don't want that to happen unless the revenue is made up somewhere else, and they oppose making it up with the millionaire surtax that the Democrats propose. On Fox News Sunday Chris Wallace asked Senate Minority Whip Jon Kyl, R-AZ, a pretty good question: How come Republicans say we have to pay for extending the payroll tax cut when they never said we had to pay for enacting the Bush tax cuts? Well, Kyl said, one difference is that "the payroll tax doesn't go into general revenue, it supports Social Security. And you can't keep extending the payroll tax holiday and have a secure Social Security." If he'd stopped right there his name probably wouldn't be in the headlines today.

But he didn't. He went on to contrast the beneficial effect of keeping taxes low on "the people who provide the jobs" with the wasteful effect of extending a tax cut to the endlessly replaceable drones who perform those jobs. He didn't call them "endlessly replaceable drones," of course, but that characterization matches the thrust of his argument. "The payroll tax holiday has not stimulated job creation," Kyl said. "We don't think that is a good way to do it."

Wallace then pointed out--and bully to him for doing so on Fox News, of all places--that economists say that failing to extend the payroll tax cut and jobless benefits (also part of the package) would lower Gross Domestic Product by 1 to 2 percent and cost 500,000 jobs. Wallace said that these economists contend "there's a real danger" that if the payroll tax cut and jobless benefits aren't extended "that you'll throw the country back into a recession." Kyl replied that "Art Laffer, who's a respected economist," doesn't think so. For details about how deeply "respected" Arthur Laffer and the supply-side theory he spawned are within the economics profession--even among conservative economists--I refer you to The Big Con, an excellent 2007 book by my predecessor in this space, Jonathan Chait. (Not to be confused with another excellent book of the same title by David Maurer, published in 1940, that inspired the movie The Sting.) Kyl then went on to say that the ultimate solution was to lower tax rates on the rich while eliminating tax deductions that favor the rich. Which makes me wonder: If Republicans think that economic recovery depends on throwing money indiscriminately at "job creators," why don't they favor throwing indiscriminate tax deductions their way? But I digress.

Kyl's deeper reasoning, if current right-wing orthodoxy is any guide, is that it isn't just that the rich must pay less in taxes. It's that the poor and the struggling lower middle class must pay more, lest they get conditioned into thinking of the federal government solely as a source of benefits. Since 1979 the federal income tax has gotten slightly more progressive, but it isn't because the rich have paid more; quite obviously, they've paid less. It's because under President Reagan and especially under Bill Clinton the federal government cut taxes aggressively for those at low incomes and provided a tax credit to the working poor. The Wall Street Journal editorial page has called this class of taxpayers "lucky duckies." The percentage of Americans who since the 2008 downturn have experienced a decline of 25 percent or more in "available household income," defined as household income minus medical expenses and debt servicing, now exceeds 20 percent, according to a new Rockefeller Foundation report by Jacob Hacker and four collaborators. (The wealthy are excluded from Hacker's calculations, on the grounds that they're sufficiently liquid to cover losses of this magnitude.) Serves those bratty duckies right! (The new report isn't yet online but should be soon.) 

While the federal income tax has become slightly more progressive, the payroll tax has become slightly less so (and it was pretty regressive to begin with). Moreover, the payroll tax now accounts for a greater proportion of total federal taxes paid than it did 32 years ago. From the Republican view, then, higher payroll taxes are an important check on the dangerous fiscal coddling of the proletariat. The GOP till now has hesitated to say "we think the payroll tax is swell because it nails working people so much more than the rich." John Kyl just moved the GOP a little bit closer in that direction.

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20 comments

The Democratic proposal ought to be to pay for the payroll tax cut by ending the income limit on the OASDI portion of the payroll tax. This is a classic Republican proposal - lower the rate, flatten the tax, but broaden the tax by removing loopholes and exemptions. How could the they not like it (and yes, my tongue is firmly in my cheek).

- IowaBeauty

November 28, 2011 at 11:42am

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Wow, he called out Laffer specifically. That's either very courageous, or very stupid. Or very courageous in its stupidity. Since Bush-II, the wealthy have had historically low tax-rates in a period of historically high deficits. That's combined with a time of NOT historically high job-creation. So the solution to our low job-creation is ... more of the same? There's a name for doing more of the same thing that hasn't been working -- insanity. So this is what the Republican Party is now offering us? Crippling social services while pushing forward an economic theory that's had disasterous effects under both Reagan and Bush-II? I'm pretty sure we can do better.

- AllanL5

November 28, 2011 at 12:40pm

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As Michael said of Tessio's betrayal, it's the smart thing to do. As is the Republicans' challenge to Democrats for a face-off on the funding of social security; and just like those politicians that the Don had in his pocket, the Democrats will run for the hills if the Republicans hit them with the charge of risking social security.

- rayward

November 28, 2011 at 12:41pm

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I didn't think the payroll tax holiday was put into place to stimulate job creation. I thought it was to allow people to buy food. (Um, I mean... "encourage consumer spending".) I know IowaBeauty's tongue is planted firmly in cheek, but ending the income limit on the Social Security contribution is an awesome idea. I assume this has been discussed in Congress already and found to be morally reprehensible inconvenience to those making more than $110k a year?

- jpell64

November 28, 2011 at 1:08pm

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Let's change the 1040 form so that payroll taxes are included in "total tax [based on wages and income]" and at the end of the form as "tax already paid". Then we can better compare everyone's "luck".

- aboufade

November 28, 2011 at 1:20pm

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I truly am curious how someone could believe such brain dead idiocy as Kyl and get to be whip. No one anywhere creates jobs for fun, they create jobs so things (goods or services) can be sold to people who would want to buy them. These are called customers. Customers need money, take money from them and they will have less with which to buy the goods or services. If I weren't married and didn't have kids I would welcome a Republican takeover so they could finally bring the whole house down on their own heads, but silly me I want my kids to have a future.

- blackton

November 28, 2011 at 1:31pm

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Aboufade, great suggestion. Only the self-employed currently connect both the income tax and the payroll tax, and fully appreciates how much of each tax he or she pays (including both the employee's share and the employer's share of payroll tax). If presented in a combined format, Americans would be beating the drums for a payroll tax cut, because that is the tax the vast majority of Americans (something close to 80%) pay the most.

- rayward

November 28, 2011 at 1:32pm

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jpel, I too think think the payroll tax limit should be repealed (although doing so would cost me a fair bit, to be sure). The tongue-in-cheek was only in reference to the Republicans liking this version of a flat tax, because of course they don't want a flat tax, they want one that is explicitly regressive. Only stupid working blokes should pay to run the country since the rich smart fellows are already doing their share by hiring the dumbies, right?

- IowaBeauty

November 28, 2011 at 1:55pm

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Well spoken, Blackton

- Tristan

November 28, 2011 at 1:58pm

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Blackton, you just don't get it. Goose the supply side, and the customers will come in droves.

- liberalref

November 28, 2011 at 2:04pm

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Iowa--It seems like one of those beautifully simple solutions that would wind up as a 3,500 page document on Obama's desk. Apparently the Unlucky richies aren't hiring the Lucky dummies these days. Maybe we need to cut the rich folks taxes...poor things. I can't stand to read to doctrines so I don't really understand how cutting taxes on the rich (but eliminating deductions...that would probably "inadvertantly" cause major negative impacts to the middle class) benefits anyone but the rich. Are we talking about businesses or rich people? I fail to see how anyone could view that as a viable solution to anything! Anyone. Blackton--you're so right. No one hires employees to bloat payroll expenses and do the country a public service. They hire people (even hesitantly in good times) to do work that has been commissioned/demanded in one respect or another. Isn't it economic growth that produces jobs? I know that's probably too basic but the cart is usually ineffective at dragging that horse around. I obviously I don't understand. Build it and they will come?

- jpell64

November 28, 2011 at 2:38pm

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"If I weren't married and didn't have kids I would welcome a Republican takeover so they could finally bring the whole house down on their own heads, but silly me I want my kids to have a future." Teach them an internationally marketable skill and Swedish. I'm not entirely joking. I love how Kyl describes Laffer as a respected economist. "Gee, I want to be a respected economist too! What do I have to do?" "Son, just keep telling us what we want to hear."

- Fishpeddler

November 28, 2011 at 2:46pm

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It's hard to respect anyone with the name Laffer. Just sayin'.

- jpell64

November 28, 2011 at 2:51pm

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Based on the job numbers so far, you would think that the talking tough Responsiblity/Accountability Republicans would fire the so called Job Creators and get someone in here to start creating some jobs. Or at least stop paying them so much in low tax rates to create jobs, which they aren't doing. The Bush Tax Cuts cost $2.1 trillion and all we got was a recession. I want a refund of the $2.1 trillion with interest. This isn't like where you pay for a bad movie and you don't get your money back. They held themselves out to the public as job creators. I want satisfaction.

- Nusholtz

November 28, 2011 at 4:08pm

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So if I understand this dust up correctly, The Democrats want to take money from Millioniares and give it to Average Joes. The Republicans want to take the money from Entitlement Programs and give it to Average Joes. I prefer the transfer of the money already collected being taken away from the Entitlement Recipients and being given to the Average Joes. I really don't see what Mr. Noah is trying to say here. I think he would be trying to make fun of anything the Republicans say.

- CRS9TNR

November 28, 2011 at 6:55pm

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CRS9TNR What if the entitlement recipients are average Joes? Or is it part of your analysis that the entitlement recipients are presumed to be inferior beings of some sort?

- Nusholtz

November 28, 2011 at 8:24pm

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If we collect some more money from the top 1 % we could reduce the deficit and spend some more % on infrastructure and R & D . We all could benefit from these actions , including those who are being asked to pitch in . I happen to think that's a better idea than raising the Medicare age to 67 . Interesting how Senator Kyl , ( really glad he's retiring ) is so sure the payroll tax cut isn't creating any jobs . We have had about 20 mths of consecutive job growth . Not as fast as we would like but we are going in the right direction. The health care sector in particular is creating quite a few new jobs. I thought " Obama " care was going to cost so many jobs . I really have to admire Chris Wallace . If Kyl told me that Arthur Laffer was his source for any thought on the economy I would bust out in hysterical laughter . How could anyone be MORE discredited .

- alanwilkov

November 29, 2011 at 12:20am

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One mark of a revolutionary party, as opposed to a governing party, is that it's answers to questions never add up. Thus, despite Republican orthodoxy on the magical benefits of tax cuts under all circumstances I have absolutely no doubt that Kyl truly believes it is a good thing for those with modest incomes to pay more taxes. But he supports added taxes for cultural and political reasons, not fiscal or economic ones, because he hopes that paying more taxes will create anti-government animus among the poor which right wing Republicans can then use in their radical attempts to dismantle the federal government.

- TedFrier

November 29, 2011 at 6:14am

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(1) Laffer being described as "respected" is like Milwaukee's Best being described as "America's Finest Beer." Laffer is a total tool. (2) I agree with Blackton and Iowa Beauty and the person who said to get rid of the income cap on the collection of the Social Security tax. Great entries.

- Lundell

November 29, 2011 at 10:13am

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(1) Laffer being described as "respected" is like Milwaukee's Best being described as "America's Finest Beer." Laffer is a total tool. (2) I agree with Blackton and Iowa Beauty and the person who said to get rid of the income cap on the collection of the Social Security tax. Great entries.

- Lundell

November 29, 2011 at 10:13am

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