Three Fights We Can Win

First Principles: Arguing the Economy

There are many things progressives need to do in the long term to win the economic argument against conservatives. But what about the short term? What about right now? The battle of ideas plays out over years. In the meantime, our side needs some wins. It can score some—even in the current climate—provided we stop thinking in grandiose terms.

When it comes to public policy, small is beautiful. This goes against the grain of current thinking and practice in left-of-center politics. Among Democrats, the recent fashion has been to draft mammoth, “comprehensive” bills—bills that routinely run into the thousands of pages and that attempt to solve every problem known to mankind. This trend puts progressive politicians in direct conflict with the public they seek to serve. For the two most important things to know about the American public of the past few decades are: they distrust government, especially the federal government; and conservatives outnumber liberals by two-to-one.

Mammoth, “comprehensive” change is so murky and fraught with uncertainty that the public is predisposed to turn against it. It’s difficult for a member of Congress to walk into a town-hall meeting and persuade people that there really aren’t death panels in the health-care bill while brandishing a 1,000-page monstrosity in front of skeptical voters. Complexity breeds suspicion in a country where 40 percent of the population is ideologically opposed to government, and 70 to 80 percent at any given time in recent history don’t trust it.

In a nation where distrust of government is stubbornly and persistently high, the only way for progressives to achieve the kind of change that we believe is in the public interest is to enact it in incremental steps, so that the public can understand and appreciate the change. So in the spirit of a new progressive incrementalism, here are three battles that progressives should fight in the next Congress to put our fiscal and economic house in order: create jobs by cutting the payroll tax and replacing the revenue lost with a carbon tax; bring the Social Security trust fund closer to balance by changing the formula for Social Security benefits so that, in the future, well-off people will get somewhat smaller benefits than under the current formula; and reduce the deficit by creating a tax expenditure budget.

Jobs: A Payroll Tax Cut/Carbon Tax Bargain

For the foreseeable future the biggest problem facing the American economy will be jobs. Good ideas for job creation are few and far between—and whatever good ideas there are may not even be enacted given our highly polarized politics. But one job-creating idea that’s consistent with the incrementalist spirit was included in the tax-cut deal President Obama reached with Republicans: a payroll tax cut. And the idea I propose here is a simple bargain: When the payroll tax cut is set to elapse a year from now, we should extend it—and replace the lost revenue with a new tax on carbon.

Why a payroll tax cut? A payroll tax is a tax on jobs. A 2007-2008 study by the progressive organization Get America Working! looked at 22 Organization for Economic Cooperation and Development economies and concluded that the higher the payroll tax, the higher the unemployment rates. A 2010 study by the Congressional Budget Office looked at policy options that have effects on output and employment, and found that three out of the six options studied that could be expected to have an impact on employment involved reductions in the payroll tax.

This is why the 2-percent payroll tax cut President Obama signed into law in December is a good idea. But while it was widely hailed as an important bit of stimulus, concerns persist. Many wonder what will happen when the one-year window for the cut elapses. Will members of either party have the guts to increase it back to 6.2 percent for individuals? In fact, if the job situation stays as stubbornly bad as it currently is, there will most likely be pressure to keep the cuts—if not impose deeper ones. You can see the train wreck coming: more pressure to cut payroll taxes just as we need more Social Security funds for retiring baby boomers.

This is where my bargain comes in. Instead of raising the payroll tax, preserve the cuts and impose another revenue-raising measure: a carbon tax. This proposal accomplishes several things. Keeping payroll taxes at the lower level will stimulate job creation. The revenue raised from the carbon tax can be used to shore up the Social Security trust fund and more than compensate for the lost revenue from the payroll tax cut. Pricing carbon also achieves a goal that has eluded environmentalists for a decade and will start us on the long road to scaling back our greenhouse gas emissions. Moreover, it will curb our reliance on foreign oil and increase our energy security. And, no less important, a carbon tax will also finally bring about the green jobs that will usher in our next economy. Indeed, think of the payroll tax cut/carbon tax bargain as a two-pronged job-creation measure.

The idea has the benefit of being easy to explain to voters. In essence, we would stop taxing work and start taxing carbon. And far from a tax increase, it’s a tax shift. In the short run, what would be more popular than a cut in payroll taxes? And what could be better for the fight against terrorism than cutting the tether to oil states? And for an Administration that has been trying to create jobs, price carbon, and shore up Social Security, what better way to accomplish all those objectives than to trade payroll tax cuts for a carbon tax?

Entitlements: Making Social Security Solvent

• 1
• 2
• 3

Post a Comment

Name

Email

Comments (you may use HTML tags for style)

Verification

Note: Several minutes will pass while the system is processing and posting your comment. Do not resubmit during this time or your comment will post multiple times.