A very interesting idea came out from The New Yorker today, one that supported a carbon tax but then went a bit further: using the carbon tax to replace the payroll tax. Before we get to that, lets go over a few things about the payroll tax.
The payroll tax is sort of a hidden tax (or forgotten, if you will) that all working people and companies pay. The Social Security piece is 4.2% (down temporarily form 6.2%) for individuals and 6.2% for companies. The Medicare piece is 2.9% and split evenly between employee and employer. There are no deductions or exemptions (except for certain clergy who abstain for religious purposes).
It is also entirely regressive: all pay the same rate; and only on the first 110k they make. The payroll tax funds an astounding 35% of the federal government. Even individuals and household who may not have any income tax liability will still have paid payroll taxes to the tune of 7.65% (or 5.65% in 2011 and 2012).
Now, The New Yorker’s idea is to scrap the payroll tax entirely (I’m not sure if they mean both Social Security and Medicare or just SS), and replace it with a carbon tax of some sort. They argue:
…cutting (or eliminating) the payroll tax is a remarkably good idea. By the same token, the payroll tax itself is a remarkably bad idea, and not just because it’s regressive. The payroll tax is a bad idea because it’s a tax on jobs—and jobs are something we want more of, not less of. It’s not a tax on “job creators” who may or may not get around to creating a job sometime. It’s a tax on job creation itself. It makes about as much sense as a special surtax on charitable contributions. Or a tax on small sugary drinks…
…By all means let’s have a stiff carbon tax—a whole carbon-tax package, one that folds in levies on other pollutants and on the wasteful or dangerous use of natural resources in general. And, at the same time, let’s make the carbon tax the source of the trust fund. Call it the Dignity for Seniors tax, because that’s what it would provide. Or the National Patrimony tax, because that’s what it would preserve. Or the Social and National Security tax, because it would underwrite both kinds.
Or, maybe, the More Payrolls Tax. As John Marshall and Daniel Webster long ago pointed out, the power to tax involves the power to destroy. With the More Payrolls Tax, we would no longer be using that power to destroy jobs. We’d be using it to create them—and, at the same time, to destroy (well, mitigate) global warming. We’d be nudging investment decisions in a socially and environmentally responsible direction by making it relatively cheaper to use human energy and relatively dearer to use the fossil-fuel kind. We’d be putting a particular dent in youth unemployment, because the payroll tax is a bigger percentage drag on low-wage entry-level jobs than on high-salaried ones.
This is interesting to me. I plan on exploring the best arguments surround this idea; more to come.
In the meantime, what are your thoughts on the carbon tax and/or payroll taxes?