Once again, the Republicans are about to blow it.
What's needed for the country right now, attempting to leave politics out of the discussion for a moment, is a tax system which is reasonably fair and predictable for the long haul. But what we've got, thanks to George W. Bush, is an unfair system which is deliberately gamed at the extremes, at the expense of the middle. And extending it for another two years just kicks that can of crap down the road.
Under it, nearly half of Americans, those at the low end, pay no federal income tax whatsoever, and millions of them actually get subsidies through the tax code in the form of a big fat "refund" check when they paid no taxes in the first place. These were expanded under Bush, and are defended as offsets of payroll taxes. Do the poor really need yet another offset, in the form of a temporary reduction in the payroll tax rate, especially considering that Social Security is an unfunded liability which is going broke fast?
Compared to the rates they replaced under Clinton, Bush's rates on everyone but the rich are projected to cost the treasury something like $3 trillion going forward, while only an additional $700 billion in tax loss expenditures are predicted to be forfeited from the well to do. Yet the Democrats characterize this as tax cuts for the rich. In point of fact, it's been massive tax cuts for everyone else, especially for the poorest, in the form of subsidies like the Earned Income Credit, the Child Tax Credit, and the creation of the lowest 10% bracket.
Those at the high end, people making in excess of about $106,000, get a huge payroll tax break of their own. They pay zero in payroll taxes above that ceiling at the same time that they pay the vast majority of federal income taxes with a top rate around 35%.
People who've lived a little remember when the poorest among us had one income tax rate, 15%, and the richest another, 28%. What makes those rates in principle unfair now?
Under them today's poorer Americans might actually pay some taxes for a change. And don't they have a responsibility to do so? Didn't Joe Biden tell us paying taxes was the patriotic thing to do? Back in the day the Senator's son got the deferment while the white trash got his ass shot off in Vietnam. Now the "deferment" goes to both the poor and the rich.
Wealthier Americans would see a decline in the rate of the federal tax they paid, that is true. But a broad-based single higher rate on income could be paired with an increase on the payroll tax cap. Why should people who make millions pay no Social Security tax on that income? Social Security is a regressive tax because it taxes the poor end the most and not the rich end. By distributing its pain on everyone equally maybe we would actually have an incentive going forward to put that boondoggle on a more solid footing once and for all, along with the rest of government.
To which end, Republicans should not compromise with the devil. If he won't bow and extend the Bush tax rates, and only the rates, permanently, then Republicans should let them expire. At least the rich will pay a little more, and the rest of us a lot more, and especially the poor. And Obama will get the blame.
