Economics, Taxes and Spending

Sorry, Peter Orszag, your payroll tax increase is already taken

Former OMB Director Peter Orszag writes that fixing Social Security without raising taxes implies unacceptably large benefit cuts for middle class retirees. Orszag points to his own plan with MIT Professor Peter Diamond, which would have much smaller benefit reductions by virtue of raising the payroll tax rate, increasing the current $107,000 limit on which payroll taxes apply, and instituting a 3 percent surtax on all earnings above the cap.

The problem is that the administration proposes or already has passed similar tax increases, except that the proceeds don’t go toward fixing Social Security. President Obama favors raising income tax rates on high earners and, in a more egregious act of poaching, the Affordable Care Act increases the Medicare tax rate on Americans earning over $250,000 by 0.9 percentage points and includes a 3.8 percent tax on investment income for people earning over $250,000. Say goodbye to your Social Security surtax.

The lesson is: you snooze, you lose. When President Obama pushes for tax increases for things he wants to do—like increasing discretionary spending and expanding health insurance coverage—he’s left with less ability to raise taxes for the things he needs to do, like fixing Social Security and Medicare. Social Security reform is more likely to involve larger benefit cuts because the administration put its wants before its needs.

One thought on “Sorry, Peter Orszag, your payroll tax increase is already taken

  1. Conservatives should have been more forceful on the payroll tax cut, are conservatives silly to realize and not tell the american public that any tax cuts would be tax hikes later on?

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