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If there’s one
lesson George W. Bush seems to have learned from his father’s presidency,
it’s this: Don’t support a broad-based tax increase, or conservatives will
abandon you.
Say what you will
about Bush 43’s record on spending and borrowing, in spite of the red ink he
has held the line on taxes. In
fact, he signed four major tax-cut packages in his first four years in office.
His income-tax rate cuts in 2001 and dividends-tax cut in 2003 were the
biggest federal tax reductions since the Reagan years.
These tax cuts have certainly kept economic conservatives who otherwise
would have been disillusioned on board with the administration.
And they didn’t hurt with the voters when he ran for reelection in
2004, either. With this recent
history in mind, it’s a surprise to discover that Bush’s pledge not to raise
taxes as part of a Social Security plan was more malleable than it seemed during
the State of the Union address. In response to a reporter’s question about
lifting the cap on payroll taxes used to fund the vast entitlement program, Bush
pointedly responded, "The only thing I'm not opened-minded about is raising
the payroll tax rate. And all other issues are on the table." It doesn’t take too
much reading between the lines to reach this conclusion: Bush isn’t open to
raising the payroll tax rate.
But if it would buy a few Democratic and wavering Republican votes, he
might be willing to go along with an increase in the income levels at which
those payroll taxes apply. Give the gift of music with iTunes gift certificates The payroll tax is
currently levied against the first $90,000 of wages.
Anything a worker earns beyond this is not taxed.
Raising the cap would make the payroll tax less regressive. But it would also be a broad-based tax increase. Here Bush is treading
dangerously close to read-my-lips territory in the service of a politically
complex Social Security reform gambit that has so far counted movement
conservative enthusiasm among its chief advantages.
How many of these free-market conservatives will go along with a tax
increase, especially one that targets their political base? National
Review’s Ramesh Ponnuru has also pointed
out that without offsetting tax cuts, lifting the payroll-tax cap would also
force most congressional Republicans to violate pledges not to increase marginal
tax rates. Bush, 46 Senate
Republicans and 222 Republicans in the House have all signed the Grover Norquist
inspired-pledge. Eliminating the cap
entirely would significantly boost economy-wide marginal tax rates, perhaps by
over 12 percentage points. Even
raising it to $110,000 would come at a steep economic price, reducing work
incentives and boosting family tax burdens.
But it might be made more palatable to at least some Republicans if
accompanied by a lower payroll tax rate and strong personal accounts. The Bush
administration may be following in the footsteps of Sen. Lindsey Graham (R-S.C.),
the first prominent and mostly conservative GOP lawmaker to put the payroll-tax
cap on the table. Earlier this year, syndicated columnist Robert Novak reported
that Graham was able to find some key Democrats at least willing to talk about
personal accounts in a reform plan that included a higher payroll-tax ceiling. Graham proposed many
of the same things the president mentioned in the State of the Union –
allowing workers under 55 to set aside 4 percentage points of their payroll
taxes into personal accounts, leaving those over 55 alone – but the bill he
filed last year also included higher tax rates for those who prefer to remain in
traditional Social Security. In a
November speech to the Heritage Foundation, the senator also argued that raising
the payroll tax cap would finance the much commented upon transition costs
without federal borrowing. At first, it sounds
like the makings of a grand Social Security reform compromise.
But many observers don’t think a higher payroll tax cap could pass the
House. Public statements by House
Majority Leader Tom DeLay (R-Tex.) seem to support this analysis. In light of
this, whetting the Democrats’ appetite for higher taxes may serve only to
jeopardize reform. Best NEWS Magazines. LOWEST PRICES Online! MAGAZINES.com. It’s also not clear
that conservative Republican holdouts would be wrong to balk at the idea.
A decidedly anti-growth tax policy shift would seem to work against some
the goals of free-market Social Security reform.
More importantly, would it signal that the White House is open to further
compromises that will dilute any pro-market aspects with big-government add-ons?
Conservatives have been down this road before (see my article in the
March 14 issue of The American Conservative).
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