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.
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