View Poll Results: Can the Payroll Tax be raised back?

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  • Yes, it can be reasonably raised back without demagoguery

    3 37.50%
  • Yes, but only as part of some Grand Bargain that reforms the entitlements

    3 37.50%
  • No, the lower rate is the new effective constant

    2 25.00%
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Thread: Is it Possible to Raise the Payroll Tax?

  1. #11
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    Re: Is it Possible to Raise the Payroll Tax?

    if the rate became permanent as you suggest for employers as well as the employees, then I could see it having a stimulative effect, but I doubt that you are going to get higher income / wealth taxes to cover the hole in Social Security. The Much-Demanded Repeal Of The Bush Tax Cut For The Rich, for example, wouldn't have even made up the difference this year; much less once the Baby Boomers are in full retirement.

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    Re: Is it Possible to Raise the Payroll Tax?

    Quote Originally Posted by cpwill View Post
    if the rate became permanent as you suggest for employers as well as the employees, then I could see it having a stimulative effect,
    Meh, it doesn't really matter whether you take the tax out before or after it shows up on their pay stub. It all comes from the same place, the employer/employee payroll distinction is just for accounting purposes. If it's more politically palatable to give employees a tax cut instead of employers, that's fine with me. The important thing is that payroll taxes were cut.

    but I doubt that you are going to get higher income / wealth taxes to cover the hole in Social Security. The Much-Demanded Repeal Of The Bush Tax Cut For The Rich, for example, wouldn't have even made up the difference this year; much less once the Baby Boomers are in full retirement.
    Well personally I think that effective taxes should be a lot HIGHER than that, but the pre-Bush tax cut levels seem to be the most revenue politicians will even consider so that's what we're left with. Anyway, if the Bush tax cuts expire for those earning more than $250,000 it will bring in an extra $70 billion per year according to the CBO and the Treasury Department. The payroll tax cut costs roughly $110 billion a year. So it isn't THAT far off, especially if the gap is bridged with measures that have bipartisan support such as charging a fee to mortgage lenders a fee to run their loans through Fannie Mae and Freddie Mac. Such policy changes would have the effect of stimulating the economy, reducing wealth disparity, and reducing the likelihood and severity of future real estate bubbles.

    And in any case, while I wouldn't mind making the payroll tax cut permanent, it's far more important that we at least extend it for a couple more years until the economy recovers. Whether or not it's made permanent after the economy recovers is less important.
    Last edited by Kandahar; 12-13-11 at 12:03 AM.
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    Re: Is it Possible to Raise the Payroll Tax?

    Isn't this a good step in reforming SS? Won't it be easier to start removing people from the SS roles if their direct contribution to it is removed and it is funded from general funds?

    If SS becomes just another welfare program that is only given to those in need that solves much of the problems with SS.

    .

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    Re: Is it Possible to Raise the Payroll Tax?

    Quote Originally Posted by Kandahar View Post
    Meh, it doesn't really matter whether you take the tax out before or after it shows up on their pay stub. It all comes from the same place, the employer/employee payroll distinction is just for accounting purposes. If it's more politically palatable to give employees a tax cut instead of employers, that's fine with me. The important thing is that payroll taxes were cut.
    that's a good point - as I understand it, economists are generally united in their belief that both sides of the payroll tax come out of compensation. Making it, of course, a 15.1% income tax that is slightly regressive due to the cap.

    Well personally I think that effective taxes should be a lot HIGHER than that, but the pre-Bush tax cut levels seem to be the most revenue politicians will even consider so that's what we're left with.
    what makes you think that higher tax rates will bring in more revenue?



    as you increase the incentive for high-performing individuals to maximize their tax avoidance rather than their productivity, that is what they will do. all you'll see from dramatically hiking rates is A) capital freezing up or fleeing and B) reduced growth from our previously attainable rate, as production is turned to tax avoidance.

    Anyway, if the Bush tax cuts expire for those earning more than $250,000 it will bring in an extra $70 billion per year according to the CBO and the Treasury Department
    statically scored, which is bogus, but yes.

    The payroll tax cut costs roughly $110 billion a year.
    no. it costs us $110 Bn this year. As employment increases (which, hopefully, it will eventually start doing), the losses increase.

    So it isn't THAT far off,
    500 Bn over a 10 year period? that's almost half of the Supercommittees assigned task right there!

    especially if the gap is bridged with measures that have bipartisan support such as charging a fee to mortgage lenders a fee to run their loans through Fannie Mae and Freddie Mac. Such policy changes would have the effect of stimulating the economy, reducing wealth disparity, and reducing the likelihood and severity of future real estate bubbles.
    I fail to see why reducing wealth disparity should be a goal, or how this would bring it about. But I'm generally down with a more realistic cost for borrowing - I just have zero faith that the Congress would be able to arrive at that, or even be interested in doing so.

    And in any case, while I wouldn't mind making the payroll tax cut permanent, it's far more important that we at least extend it for a couple more years until the economy recovers. Whether or not it's made permanent after the economy recovers is less important.
    but you are speaking policy, and what I am asking here is politics.
    Last edited by cpwill; 12-13-11 at 03:56 AM.

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    Re: Is it Possible to Raise the Payroll Tax?

    Quote Originally Posted by TOJ View Post
    Isn't this a good step in reforming SS? Won't it be easier to start removing people from the SS roles if their direct contribution to it is removed and it is funded from general funds?

    If SS becomes just another welfare program that is only given to those in need that solves much of the problems with SS.
    It is true that means-testing would reduce our unfunded liability, and that is why it will probably eventually be used. right now, unfortunately, the "stay the course" advocates are worried that de-linking payouts to how much one paid in taxes would cause people to realize that they aren't actually "just getting out what they paid in", and would thus reduce the political support for the program.

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    Re: Is it Possible to Raise the Payroll Tax?

    Quote Originally Posted by cpwill View Post
    Or have we now put ourselves in a situation where the political incentives will lead to an annual Christmas posturing as each side accuses the other of wanting "to raise taxes on the middle class", leading to this "temporary" tax cut taking on a permanent nature?


    If so, the cavernous hole that is our entitlement disaster just got a good bit deeper.
    IMO, a myth spread by Limbaugh and his conservatives.
    I feel that the fairest thing to do is to restore the tax rates to an earlier time (the Clinton era) and then LEAVE THEM BE !!!!!
    a fed-up 90%er......
    The problem is waste....we need people who can see this !
    examples are war, fear and ignorance !

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    Re: Is it Possible to Raise the Payroll Tax?

    Quote Originally Posted by cpwill View Post
    what makes you think that higher tax rates will bring in more revenue?

    That graph masks the differences that could be shown by zooming in on the relevant area. It looks like a flat line, but there is actually quite a bit of variance if one zooms in on the 15-22% range instead of scaling the chart from 0-100%. A difference of 1% is over a hundred billion dollars per year, so that alone could pay for the payroll tax cut (if we chose to make it permanent).

    as you increase the incentive for high-performing individuals to maximize their tax avoidance rather than their productivity, that is what they will do. all you'll see from dramatically hiking rates is A) capital freezing up or fleeing and B) reduced growth from our previously attainable rate, as production is turned to tax avoidance.
    Perhaps. But not enough to offset the additional tax revenue. Furthermore, not all income generated comes from "production," nor am I necessarily even sold on the classical economic belief that more production is always a good thing.

    statically scored, which is bogus, but yes.
    OK, the same could be said of a payroll tax cut.

    no. it costs us $110 Bn this year. As employment increases (which, hopefully, it will eventually start doing), the losses increase.
    ...which would be offset by additional tax revenue from allowing the Bush tax cuts to expire. If we allow the Bush tax cuts to expire and extend the payroll tax cut, even if the estimates are wrong due to incorrect guesses about the future state of the economy, they'll at least be wrong in the same direction and therefore the one will offset the other.

    But from a policy standpoint it will be less important to continue to extend the payroll tax cut once the economy recovers anyway. Budget deficits should be large during recessions, and balanced or in surplus during booms.

    500 Bn over a 10 year period? that's almost half of the Supercommittees assigned task right there!
    It would actually be $400 billion (if we didn't bridge the gap with the bipartisan consensus on taxing mortgage lenders for routing their loans through Fannie/Freddie). Which isn't really that much. $40 billion per year is less than the federal government spends on HUD, for example.

    I fail to see why reducing wealth disparity should be a goal,
    Because one marginal dollar of income increases the wellbeing of a poor person far more than it increases the wellbeing of a rich person. In fact, I question if it increases the wellbeing of a rich person at all.

    but you are speaking policy, and what I am asking here is politics.
    In terms of the politics, my guess is that you are correct that it will be hard to undo a payroll tax cut (particularly if it's made permanent so that raising it requires action rather than inaction). Any time there is a policy that is popular with either the voters or moneyed lobbyists, you can be sure that someone or everyone will latch onto it. This is actually the same reason why I am strongly opposed to another extension of the Bush tax cuts in full. Even though they might provide some small economic stimulus, I think that extending them increases the likelihood that they will eventually be made permanent. If I had more faith in politicians to let them expire once the economy recovers, I might be more inclined to support a temporary extension. With the payroll tax cut extension, I'm less concerned about that because they are more stimulative and I don't really mind if they are made permanent anyway.
    Last edited by Kandahar; 12-13-11 at 04:12 PM.
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