On balance the individual tax is progressive. To me a top priority is getting the cap gains and dividends rates back to those for other income.
If you put credence in the social insurance concept, not incidentally the foundation for social-democratic systems throughout the industrialized world, then you don't want SS buried in the budget. So it is wrong to say there is NO downside. That said, it always seemed to me a limited departure to fund any shortfalls (once the payroll tax rates are restored) with income tax revenue.
If you abolish the payroll tax you need to increase income tax rates on that same income to recapture it. J's note that the employer paid portion is just lost wages is the standard economic view. The technical wrinkle here is that the current income tax includes a transition from net credits (mainly the EITC) to net liabilities. Inside the transition there is an implicitly higher tax rate (very high under the current design of the system), consisting of literal tax liability plus the takeaway of benefits. Expanding the income tax while retaining the low-end credits means a more onerous transition, and likely concentrating more tax burden than under current circumstances on middle income classes.
There is no problem funding SS with something like the current tax system.
The possible shortage is about 1.5% of GDP. For social democracy, however, such as a tax share of GDP in the high 30s or more, you need more than taxing the rich and the corporations. To wit:
http://tiny.cc/u3bln (sorry, you gotta pay for it)
On Sun, Feb 19, 2012 at 2:35 AM, J. <unspeakable.one at gmail.com> wrote:
> Wojtek wrote:
>
> > And one more thing. Right now, 50% of SS tax is paid by employers.
> > If they include it in the general budget, it will get the employers
> > off the hook, no?
>
> No, those taxes are really just passed on to employees as reductions in
> wages. So if SS were moved to the general budget, we could expect wages to
> increase as a result (provided there is enough bargaining power to
> recapture
> the withheld wages). There is no downside and much upside to eliminating
> the
> payroll tax. It is a tax specifically on labor, and a regressive one at
> that, i.e., high earners pay less of it than low earners as a percentage of
> their earned income. No government program has to pay for itself, and there
> is no reason why we should impose this voluntary constraint.
>
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