As I now realize, my suggestion to repeal payroll taxes was ill-advised--let's be candid, it was dumb--so I withdraw it. Is that allowed on DKos? :-)
Project Omaha is about consensus, and my repeal suggestion obviously won't cut it. What I failed to realize is that there is considerable political value in isolating Social Security from the rest of the budget, as pointed out by Kossacks who have more political savvy than I. So, let's explore ways to make the present system less regressive--perhaps even progressive-- below the fold.
Project Omaha is an ongoing effort to produce a consensus tax proposal to counter the proposals made by Republicans. FairTax, Flat tax, and 9-9-9 would all shift the burden the wrong way. But if we just oppose these without making a counter proposal, some voters will conclude that we don't have any constructive ideas of our own. We do, of course, but I think we need to put these ideas into a coherent package that we can put a label on.
Diaries discussing this idea include these three so far:
An Ex-Republican Tries to Make Amends
Our Beloved Income Tax
A Call to Repeal Payroll Taxes
So let's discuss payroll taxes again. In the comments to the last diary, I believe three suggestions stand out:
1. Extend or remove the earnings cap.
2. Instead of a flat rate, make the rate progressive.
3. Subject capital gains and dividends to the tax.
I gave two arguments for the proposition of shifting the burden towards the 1% in my ill-fated third diary. Briefly, these can be summarized as the "greater human well-being" argument, and the "you owe this to the people who put the tools in your hands" argument. There are other arguments as well and I'd love to see some diaries on this subject; it's an important one.
So, to take the above one at a time, consider the first. Extending the cap is the least controversial, but the least effective. If we eliminated the cap altogether, then the payroll tax rate could be reduced somewhat for all taxpayers, while still raising enough revenue. But that would make it merely flat, not progressive. But it does have the advantage that if the system got to the point where it needed more revenue, it could be produced with a smaller increase in the rate. A broader tax base leads to greater flexibility and stability.
Making payroll taxes progressive would be relatively easy, at least as far as mechanics are concerned. (The politics would be anything from simple.) The employer would simply apply the next marginal rate as soon as the employee's total wages for the year reached the bracket boundary. The only complexity arises when the worker has more than one source of income, and I don't see any problems along those lines that cannot be solved. (It might be a good idea to put in place a formula that evens out the actual take-home pay; otherwise the taxpayer might find her income reduced just as Christmas rolls around.)
a little massaging of the numbers found on this census bureau website would suggest then the following marginal tax table would produce a bit more revenue than needed: (I include the "employer contribution" as part of the employees wages, which it most certainly is.)
0 - 22,500 4.5%
22,501 - 47,500 9.0%
47,501 - 106,800 13.5%
106,801 & up 18.0%
It is true that this increases the tax on the wealthy, but everybody making less that $135,000 would see some benefit. Since the wealthy already pay the 2.9% Medicare tax on all their income, this represents a 15.1% increase (on income) for them. Yes, this is pretty steep, and no, I don't think we could get it passed before Christmas, but keep in mind that this is an exercise is setting a goal. The transition from a cruelly regressive tax to a moderately progressive one is bound to look radical, but it need not take place abruptly.
Bruce Webb commented to my previous diary:
You need to ask yourself WHY FDR, Labor Secretary Frances Perkins, the Committee on Economic Security, and the Brain Trust generally set Social Security up on a worker financed insurance model rather than a general fund welfare model.
As I read his full comment, he seems generally sympathetic to my aim, but seems to object on practical grounds. However I wanted to answer the idea that the SS system iis designed as an insurance plan. That may have been the original intent, but when the government levies a mandatory payment and calls it a tax, then it's a tax. It's true that there are insurance elements to the program, but the main benefit is retirement income. The young worker with a low income is especially disadvantaged by this tax. That worker will not any benefits for years to come. I think this is an injustice.
I am today receiving Social Security retirement benefits. I am not at all comfortable with the notion that minimum wage workers must contribute 1/7 of their income to help finance my Hawaii vacation next month. I am certainly far from being rich, but I'm better off than many of the people who are being taxed to help support me.
Republicans are fond of quoting the statistics that put their agenda in the most favorable light, which is why they never talk about payroll taxes, nor about regressive state and local taxes that the 99% bear the brunt of. When all taxes are taken into account, the picture changes radically, and the total tax load for the 99%, as a percent of income, may well be higher than it is for the 1%; it might depend which state you live in. Take a look at state taxes, for instance. The regressiveness varies from state to state, but in all 50 states, the 1% pays a lower percent of income than the bottom 20%. It is only in the Dictrict of Columbia that the 1% pay more than the lowest 20%, and then only barely. The average state taxes its poorest quintile to the tune of 10.8% (population weighted). Add to that the 15.3% they pay in payroll taxes, and the poorest 20% of Americans pay 26% of their income in federal and state taxes. I wonder how many of the 1% approach that lofty total. We know that Warren Buffett doesn't pay that high a percentage by his own testimony, even adding in the 6.1% that Nebraska taxes its top 1%.
Republicans claim that 51% of Americans pay no taxes at all. This is just a bald-faced lie; there's no other way to characterize it. All this makes it all the more important to have a progressive federal code, which should include payroll taxes. My above tax table is intended as an example to help redress the balance. It is only an example, not a concrete proposal.
Republicans have no interest in tax fairness; they see taxation as a tactic to achieve more wealth for the wealthy. They disguise this with catchwords, like "job creators" and "class warfare" and "income redistribution". I don't think we Democrats have been as successful in the clash of sound bites. I wish I could help to remedy that, but I am not a speechwriter.
My bottom line on this issue: We hold the moral high ground; we should press hard.
Old business
On the question of excise taxes, we are split down the middle. So, at the moment, no decision. Though I favor dropping "sin" taxes because they are regressive, it's not a big deal for me.