View From a Height
Commentary from the Mile High City
Thursday, December 26, 2002
Our friends at Real Clear Politics has a link to an op-ed by John F. Kerry of Taxachussetts arguing for a cut in the payroll tax. He makes the case on redistributionist grounds: the tax is regressive (which is clearly true), so exempting the first $10,000 will result in "an immediate savings of $765" to all workers. It's a good idea, one that should be part of the President's tax-cut package. But the reason it's a good idea has nothing to do with the extra $15 a week workers will see. And the arguments that Kerry puts forth are so tendentious and economically ignorant so as to disqualify him for serious consideration for President, regardless of how Presidential his hair is.

First, he assumes the Class Warfare mantle that his political class is so well-known for. He decodes a Republican complaint about redistributionist taxes to mean that the "rich" shouldn't be subsidizing the middle-class's cars and mortgages.

Secondly, he argues that the cut should come from general revenue, not from Social Security or Medicare. Except that these are exactly the programs that the payroll tax funds. I know he's never been a deficit hawk, unless it was Republican deficits under discussion, but this essentially takes the Federal Budget shell game to new levels. Before, we would subsidize deficits from the Social Security "fund." Now, we're just going to divert that money, like a Colorado river in a B-Western, before it even gets there, and fund the shortfall in Social Security and Medicare from general revenue. This, in and of itself, doesn't bother me, but instead of making part of a larger plan that just lumps Federal spending together on the books, it tries to preserve the accounting fiction, while obliterating the actual distinction in revenue.

Third, the money would come to $15 a week, exactly the kind of money that the Democrats routinely ridicule when Republicans propose tax cuts.

In the course of his class-warfare arguments, he doesn't mention whether or not businesses would get their half of the tax recuded, as well. Businesses pay half the payroll tax for employees, another $765 on that first $10000. If businesses do get a reduction, it provides benefits long-, near-, and mid-term. In the near-term, their own cash flow improves by that $765 per employee. Since consumers have been holding up their end of the economy, this will help provide the cash that many near-break-even companies need to increase their capital spending. In the mid-term, at least some of that savings will wind up in employees' pockets. As the labor market tightens, employers will once again find themselves competing for qualified employees, and will have the cash on hand to bid up the price a little.

The kind of business that can least afford the payroll tax is the small entrepreneurship. I've started businesses myself, and it's a whole new world. Yes, you get all sorts of deductions, but you also get an immediate 7.65% increase in your personal tax burden. Given that the biggest challenge facing small companies is the need for cash, this hurts most where new companies can least afford it - cash flow. If the tax is regressive on individuals, it's also regressive on businesses, with small companies feeling it the most. Entrepreneurs and small businesses are in increasingly important part of that economic engine, and any help we can give them would be doubly appreciated. But there's nothing in Kerry's bag for them.

This is not entirely a surprise. If MEMRI is Indispensible, Project Vote-Smart is invaluable. In 2001, Kerry scored a 0 from the National Association for the Self-Employed, a 17 from the National Federation of Independet Business, and a 0 from the Small Business Survival Committee.

At least Kerry seems to realize that the tax structure is no longer supported politically by the very people it's supposed to benefit. But if he really wants to increase income to the working class, he might consider switching hair stylists.

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