By David Hogberg on 1.13.04 @ 12:05AM
Democrats have just lost the debate on taxes and Social Security reform.
Are the Democrats about to lose the debate on both taxes and
Social Security reform? If Howard Dean is the eventual nominee, and
he is serious about his proposal to cut payroll taxes, the answer
is yes. Indeed, Dean's new proposal shows both how far the tax
debate has come and the extent to which the Democrats still do not
get it.
The anti-tax right has been so successful at arguing that taxes
are too high that the message has apparently seeped into the
Democratic base. Consider that with Dean's announcement of a cut in
the payroll tax, among the serious candidates only Dick Gephardt
does not have a plan to cut middle-class taxes. Indeed, the other
Democratic candidates spotted Dean's weak flank, and the attacks
apparently became so intense that Dean had to toy with some way of
cutting taxes. Can anyone imagine that happening in a Democratic
primary even a decade ago? In 1992 only Bill Clinton proposed any
tax relief, the ever-elusive $300 middle-class tax cut. Now it
seems that any future candidate for the Democratic nomination will
have to have some plan to cut taxes. This bodes well for
Republicans in the future, for the public tends to trust the GOP
far more on taxes than it does the Democrats.
In fact, Dean's new proposal bodes well for Bush right away.
Although the details won't be released for another three weeks, for
the sake or argument let's assume that (1) Dean proposes a 40% cut
in the payroll tax, or just over 3% of payroll for a worker; and
(2) he forges ahead with his plan to repeal the Bush income tax
cut. According to Steven Moore of the Club for Growth, Dean's
proposal to roll back the Bush tax cut would mean a tax increase of
$1,432 for a married couple with one child and a $40,000-a-year
income. A 40% cut in the payroll tax would mean a tax reduction of
$1,224 for that same couple. Thus, if Dean repeals the Bush tax cut
and reduces payroll taxes, that couple will see a net tax increase
of $208.
Now consider that, according to Moore, a couple with two kids
and an $80,000-a-year income would see its taxes increased $1,708
with the repeal of the Bush tax cuts. With a 40% cut in the payroll
tax, that family would see a tax savings of $2,400. That's a net
tax cut of $692. In short, Dean's policy proposals could mean tax
increases on those with less income, and tax cuts for those with
more income. Dean and Democrats will then be open to the very
charge that they so often lob at Republican tax cut plans:
regressive taxation. In other words, Dean may have just ceded
whatever moral high ground he might have had in the tax debate.
The final way that Dean's payroll tax cut plays into Bush's
hands is that it concedes the debate on Social Security reform. If
Dean is willing to cut payroll taxes so that workers can then go
out and spend the money, what possible defense can he have against
letting those same workers invest their payroll taxes to save for
retirement? I get this image in my mind of Bush saying to Dean in a
debate, "Governor, with your payroll tax cut, any worker who wants
to can take the money they save and invest it into the stock
market. So why are you against Social Security reform, which also
allows workers to invest their payroll taxes in the stock market?"
Game, set, and match.
A Democratic tax proposal that undermines one of the Democrats'
biggest attacks on tax cuts and also loses the debate over Social
Security -- you know, I could really enjoy this election year.
topics:
Taxes, Bill Clinton, Social Security
