Thursday, April 14, 2005

The Republican agenda: replacing progressive with regressive taxes

I'm afraid I succumbed last night to the besetting sin of blogging, which is to hit publish when you haven't fully baked your thoughts.

It was late last night when I read the article about the Republicans in the House voting to permanently abolish the estate tax. I tried to be glib in showing how this move represented the flip side of the GOP's effort to abolish Social Security-- both moves being aimed at turning a progressive economic system on its head. What I actually wrote, however, came out completely garbled, and anyway, Josh Marshall says better what I had in mind.

As great as Josh has been on the Social Security issue, I think he's missing a turn in depicting just how sinister and despicable the Republican effort to abolish Social Security really is.

Let's start by establishing what the abolition of the estate tax is really all about. The fatuous rhetoric about it being unfair "for a grieving family to be visited by both the coroner and the taxman on the same day" is just hooey. (More exactly, it's bullshit.) The true aim for the anti-tax ideologists in the Republican Party is to abolish any progressiveness in the tax code--hence the regular revival of calls for a flat tax.

Why do the anti-tax ideologists believe in a flat tax rate? Well, it's because they regard a progressive tax code as (nothing more and nothing less than) social theft: it's robbing from the rich to give to the poor. And as far as people like Steve Forbes are concerned, the government shouldn't be in the Robin Hood business. (Let me note in passing that there are plenty of honest, ethical rich people who admit that abolishing the estate tax is functionally just a handout to the rich.)

But Josh and I may have been underestimating the ambitions of the anti-taxers. For it would seem that it's not so much that they want the government to get out of the social theft business, but rather that they just want the government to rob a different group of citizens (the poor) on behalf of another group of citizens (the rich). And the proof of this can be found precisely in the Republicans' effort to abolish Social Security. Let me explain why.

As those of you who have been following Social Security debate know, one of the Republicans' main talking points has been that the Social Security system is going to be bankrupt in 2017--the date when the pay-as-you-go system is expected to move into the red for the long haul. Now, this 2017 crisis date has been a bit of a hard sell for poor George, because in fact there's this pesky thing called the "Social Security Trust Fund." Since 1983, Social Security taxes have collected not just enough to pay for the current generation of retirees, but also a very large amount extra, which in principle has been being salted away to ensure that the system will stay solvent for several decades after the Baby Boomers retire. Hence the other date that often comes up, 2040 or so, which is when all those extra dollars that have supposedly been saved up in the Trust Fund will in fact run out.

If this is the case, then why are the Bushies talking about 2017 as the real date when the crisis commences in earnest? Part of the reason they talk about 2017 is purely political: it's a lot easier to convince people there's a problem if the crisis date is 12 years away, versus 35. But in fact there's also some legitimate economic justification for thinking that in fact 2017 is the date when the fiscal problems of Social Security really begin.

This is because the Social Security Trust Fund is in fact something of an accounting fiction. Ever since the inception of the Trust Fund in 1983, the federal government has consistently raided the Fund to finance general, non-Social Security spending (for example on things like pork barrel projects for Tom DeLay's congressional district, or wars of choice in the Middle East). As Josh has repeatedly pointed out, at least half the point of George Bush's war on Social Security is to ensure that these trust fund dollars don't ever have to be paid back.

Again, part of this is driven by a very short-term political logic: if those Trust Fund bonds that Bush characterizes as "worthless IOUs" do in fact have to be paid back, then without question we're going to have to massively raise taxes -- like, back to where they were in the late Clinton years, which was when the U.S. finally managed to get the non-trust-fund-funded part of the federal budget more or less into equilibrium. In other words, bye-bye Bush domestic legacy.

But there's a deeper, more long-range political logic at work here. If we actually follow Bush and consider the Social Security dollars as part of the general tax fund, instead of thinking of it as a special system that is financed separately from the rest of the government, then in fact the conclusion we quickly arrive at is that the Social Security system is a massively regressive tax system.

Just how regressive is it? Well, for example, if you have an income of $50,000, then you pay 6.2% of your income to Social Security. But if you make $200,000, then you only pay 2.8% of your income to Social Security. That's because the rich only pay Social Security taxes on the first $90,000 of income; after that, the rich get off the tax wagon, literally scot free.

Okay, I hear you say: six-point-two, two-point-eight, yeah, that's a difference--but what's the big deal? Well, let me tell you, it's a very big deal. In fact, it's only recently that I've become viscerally aware of just how regressive the Social Security tax really is. Every Fall for the last few years there's always this magical moment when I hit the maximum on my annual Social Security contribution. All of a sudden, my take-home paycheck jumps. And I'm not talking about a little baby jump: when I stop paying the Social Security take, my take-home paycheck jumps by about 35%. To put a fine point on it: that 35% is basically a tax break the government gives exclusively to the richest 10% of the country's taxpayers.

The fact that the system is regressive wasn't so bad back in the day when we looked at Social Security as a special tax devoted to a specific purpose, that in principle was going to get paid back in a special, specific way. But now George Bush and his ideological fellow-travelers want to change the way we think about those taxes. Those aren't special taxes devoted to social insurance for old age or disability, George is telling us. No, they're just taxes like any other, in fact being used just like income taxes and excise duties -- e.g. to fund whatever the wingjobs in Washington want to spend it on.

Now we're ready to complete the last step in the logic here. If social security taxes are not only regressive, but also just part of the general fund, then according to the political argument usually posed by the flat tax crowd, isn't this tax too (nothing more and nothing less than) social theft? It certainly is, with of course one small but crucial distinction: whereas estate taxes take from the rich to give to the poor, a regressive general tax steals from the poor to give to the rich. And whereas taking from the rich to give to the poor has ever since Jesus often been considered a morally courageous act, the converse act has always everywhere been considered nothing less than despicable and evil.

With all this in mind, the Democrats should use this moral opening in the debate over Social Security to question the cap on Social Security taxes. The cap is an immoral, regressive loophole for the rich. Moreover, that cap is just about the only reason why Social Security is facing any solvency issues at all. By the simple act of removing this Robin-Hood-in-reverse tax loophole, Social Security would be put on firm fiscal footing until at the very least 2024, and arguably until 2079. It's the right thing to do, and it's a positive plan.

No comments: