David R. Henderson  

Media Watch: Man Bites Dog

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In my local paper, the Monterey County Herald, this morning, on the front page above the fold is the following headline: "GOP may approve payroll tax hike." It was a shocking headline and the story, by Charles Babington of the Associated Press, confirmed my shock. But that's not the point I want to emphasize because I'm sure various bloggers will be all over this in the next hours and days.

Instead, I want to point out something extremely rare about the story. In the 5h paragraph (the 3rd paragraph of the Seattle Times version that I found on the web), Babington writes the following:

The policy [the Social Security tax cut on employees] helps the 46 percent of all Americans who owe no federal income taxes but who pay a "payroll tax" on practically every dime they earn.

Why is that striking? In the last 10 years, with all the debate about the Bush tax cuts, when can you remember an AP story that said forthrightly, in the first few paragraphs, no less, that almost half of all Americans pay no income tax? That's a point many of us have made in response to claims that the Bush tax cut didn't do enough for low-income people. We have pointed out that it's hard to cut income taxes for people who--pay no income tax. We've had little mainstream media support for this obvious claim.

So why does Babington mention it now? I leave that as an exercise for the reader.

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COMMENTS (5 to date)
Kevin L writes:

Perhaps he mentions it to point out that even though this group pays no (net) income tax, they still pay payroll taxes. I still think it's sad that many people have so little business sense that they consider "employer's" portions of payroll taxes as actual taxes on businesses, and not on the employees.

PrometheeFeu writes:

I really wish we would stop this ridiculous division between the "employer share" and the "employee share". It's an absurd division which does nothing except confuse and trick the uneducated.

Well, to be fair, because of nominal wage rigidity, it is probably true that making the tax the "employer share" means that you can raise taxes without cutting people's take-home pay. Well, expect for those people who go home and not come back the next day of course.

Kevin L writes:

The most immediate effect of a tax on payrolls is of course on shareholders. An across the board change sends corporate profits reeling, the stock market reels with them, people feel unsafe about their retirement investments, they call for Social Security to be propped up, and the cycle starts all over.

Bill D writes:

It's only not an income tax if one actually believes in a Social Security trust fund.

I think society (on both sides of the issue) could have a much better discussion about funding of gov't if the trust fund myth was put aside.

But it suits the rhetoric of both sides to keep the current stories in place.

Seth writes:

It makes perfect sense.

I agree with Kevin L. The left's Bush tax cut argument includes the payroll and income tax.

They view the payroll tax as regressive and bad and fail to associate that tax with the benefit to which paying it entitles you.

In other words, they'd like payroll taxes to be progressive and essentially turn SS into a another rich-to-poor transfer.

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