The Senate health plan contains an 0.5 increase in the Medicare payroll tax on upper-income people: individuals earning more than $200,000, families earning more than $250,000.
Stipulate first: this seems unlikely to survive into the final bill and for 3 reasons.
1) People are going to notice that the threshholds for this tax increase are not indexed for inflation. If we assume even 3% inflation, today’s $100,000 households (15% of the country!) will find themselves hit by the new payroll tax within 20 years – even without a pay increase. If we assume 6% inflation, they’ll be hit within 10 years.
2) Blue dog Democrats are not going to want their names associated with any kind of tax increase. Period.
3) As payroll taxes become more “progressive,” the programs they support become more blatantly redistributionist. And smart Democrats from FDR onward have always understood that the secret of popularity for a government program is to appear non-redistributive: everybody pays, everybody gets. Then you can say: It’s insurance, not welfare. With this measure, Medicare becomes more welfare-like and therefore more politically vulnerable.
However, even assuming that the current proposal for a payroll tax hike gets axed, the very fact it is on the table confirms a warning made by Bruce Bartlett in his new book, The New American Economy.
Whether healthcare passes or not, the combination of rising Medicare spending plus baby boom retirement has put the U.S. on a glided path toward a substantially bigger government for the next 30 years. Barring unprecedented and improbable cuts in spending, especially on Medicare, the federal tax take will rise from the 20% of GDP that prevailed in the 1990s to 25% or more. The big question for the next generation of American political leaders will be: what form should these tax increases take? Bartlett argues that if Republicans do not step forward to propose economically rational revenue measures that protect saving, investment, and economic growth, the liberal wing of the Democratic party will dominate the debate and heap rising progressive taxes on upper income earners.
They just fired their first salvo in Harry Reid’s Senate. That shot will likely miss. But the barrage is only beginning.
11 responses so far
1 balconesfault // Nov 24, 2009 at 9:00 am
As payroll taxes become more “progressive,” the programs they support become more blatantly redistributionist. And smart Democrats from FDR onward have always understood that the secret of popularity for a government program is to appear non-redistributive: everybody pays, everybody gets.
This is true … but the problem is that a lot of the social contract was written during a time when the discrepancies in wealth in this country were much less severe. For example, when Medicare passed, the ratio of worker to CEO compensation among top corporations was around 24:1 … now it’s around 480:1. The Labor Department publishes the Gini Index, an indicator of the discrepancies in wealth across American society – since the mid-60’s these discrepancies have been consistently increasing.
The practical effects of this concentration of wealth into top percentiles is that it becomes increasingly impractical for middle-class workers to bear any increased tax burden. An increase in middle class taxes or cut in middle class benefits has an immediate downward effect on the disposable income of middle class Americans, and that translates into an economic downturn faster than any other factor. This in turn exacerbates the very economic conditions you are trying to reverse.
Thus, if we are going to have a “winner take all” society where more and more wealth is concentrated in the hands of the wealthiest Americans, it becomes unsustainable to be able to expect to maintain programs that seemed economically practical just decades ago. The middle class just doesn’t have the income to pay for them any more.
2 ottovbvs // Nov 24, 2009 at 9:32 am
…….David needs to read some of Bruce Bartlett’s analysis on this topic a little more carefully……..he concedes that taxation is both going to rise and that it is desirable it should do so……one of the problems as he points out is that the effective rates of taxation in this country have fallen to rates last seen in the fifties (for those paying the top notional rates of around 35% the effective rate is around 30%)……one of the major causes of the deficit has been the collapse in tax receipts(because of the recession) from a population that had received substantial tax cuts early in the Bush admin that produced notably little economic benefit…….as Bartlett points out and David repeats nothing can stop the rise in govt expenditures over he next 25 years regardless of any debates about healthcare……if you look at the federal budget of around 2.8 trillion only about 20% is “discretionary” and even that’s a highly dubious term since the discretion is largely directed at federal and state programs that are to a large extent sacred cows like ag subsidies not least to representatives/senators from ag states regardless of party……the great bulk of expenditure is social programs like Medicare, Defense etc……..the refusal to accept these simple facts is the hole in the doughnut of Republican economic thinking……federal and state expenditures in this country are around 4.5 trillion so talking about small govt, bathtub drownings etc etc is totally ludicrous particularly as when push come to shove as for example in the desire to save money by eliminating the Medicare advantage program Republicans fight it tooth and nail…….my personal belief is that once the economy has stablilized you’re going to a serious effort made to deal with the deficit and this inevitably means raised taxes.
3 mymy // Nov 24, 2009 at 10:11 am
I’m not sure why everyone makes such a big deal about”Blue Dogs”.They seem to talk a lot about their independence,but when it comes time to vote they pull the lever as told.
4 ottovbvs // Nov 24, 2009 at 10:49 am
mymy // Nov 24, 2009 at 10:11 am
……actually most of the blue dogs voted against the healthcare bill in the house but largely because Pelosi was able to give them a pass as she had the votes……at least the Democrats have a mildly conservative faction in their caucus while the Republican caucus is entirely mildly liberal free…….that’s one of the GOP’s problems although they perceive it as a virtue…..but outside of Snowe, Collins and maybe Lugar they have no moderates on capitol hill……and when Snowe and Collins retire their seats are probably going democrat
5 mymy // Nov 24, 2009 at 11:13 am
I would be interested in what exactly is a moderate Republican? What is a moderate Democrat?
6 ottovbvs // Nov 24, 2009 at 11:22 am
mymy // Nov 24, 2009 at 11:13 am
“I would be interested in what exactly is a moderate Republican? What is a moderate Democrat?”
……are you really this ill informed?……almost certainly not but when you haven’t got a reasonably sensible response I suppose casuistry will have to suffice…..it would be great if just a few conservatives here would actually talk substance instead of trying to be clever (as in this case) or just endlessly screaming
7 mymy // Nov 24, 2009 at 11:45 am
Excuse me .Mr.Otto.If you can’t answer a simple question I doubt you are so well informed.Unless you can define what you are in favor of.How the heck can anyone discuss anything with you
8 Moderate // Nov 24, 2009 at 12:01 pm
mymy,
There’s no etched-in-stone definition of “moderate.” It’s really just a place on the spectrum.
I’m conservative by inclination, but I view myself first and foremost as a pragmatist. If a liberal approach is better for solving a particular problem, I will advocate it. Some conservative zealots are so wrapped up in ideology that they can’t conceive (or admit) that a liberal approach might work better in certain situations.
A bigger problem, though, is that “conservative” itself is a fairly meaningless term. Does it mean protecting our inherited traditions and institutions, or restoring an earlier way?
Does one have to hold conservatives view on social issues, economic matters, AND national defense to qualify as conservative, or can one be selectively conservative?
9 ottovbvs // Nov 24, 2009 at 12:13 pm
mymy // Nov 24, 2009 at 11:45 am
“Excuse me .Mr.Otto.If you can’t answer a simple question’
……if the question is so simple, and on the whole I think it is , why would you even need to pose it?…….I find it really hard to believe that although it’s shorthand that anyone remotely interested in politics doesn’t have a rough idea of what a “moderate” is in the context of the two political parties is……in fact I gave three examples above in the Republican senatorial caucus……I think they are an extinct species in the Republican house caucus, and on the Dem side you have 6-8 senators like Nelson and Lincoln and the fairly visible blue dogs in the house
10 ottovbvs // Nov 24, 2009 at 12:15 pm
Moderate // Nov 24, 2009 at 12:01 pm
mymy,
“There’s no etched-in-stone definition of “moderate.” It’s really just a place on the spectrum.’
……And it’s a place on the spectrum that moves around a bit depending on the issue
11 balconesfault // Nov 24, 2009 at 7:37 pm
mymy: I’m not sure why everyone makes such a big deal about”Blue Dogs”.They seem to talk a lot about their independence,but when it comes time to vote they pull the lever as told.
You can rest assured that there would already be a signed, sealed and delivered healthcare bill with a far more robust government option than will be available in the final legislation that passes were it not for those Blue Dogs (not to mention the Stupak Amendment not having any legs at all without them). Same with the stimulus plan, where a lot more money would have been put into government spending, instead of tax cuts, and the size of the stimulus would likely have been larger.
If you expect the Blue Dogs to make the Democrats act like the current Republican Party, that’s not happening. But it’s more like the Blue Dogs force the debate within the Democratic Party that used to take place between Democrats and progressive Northeastern and Northwestern Republicans three decades ago.
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