Psst, Want A Cut In Your Payroll Tax?

032502, story, taxes, IRS, JM CBS/AP

Tax policy is always at the heart of a GOP agenda. Bush II, Term 1, Second Act will be no exception. In his latest Against the Grain commentary, CBSNews.com's Dick Meyerlooks at some of the plans.

Now that the election is over, there's finally an interesting debate going on about a little issue voters tend to care a whole lot about. It's called taxes. "How convenient."

There's no doubt that the President will stick to the standard Republican playbook and push tax cuts next year; it's like Woody Hayes running on first down. Accelerating temporary tax reductions scheduled for 2003-2005 and then making them permanent, along with some still unannounced goodie package, will be at the top of the administration's domestic wish list. (It is likely to be a short, unambitious and uncreative list.)

The Democrats, however, may -- perhaps, possibly, conceivably -- stray from their tried-and-failed, knee-and-jerk ancient hymnal, which has exactly two songs; one that squawks about evil tax breaks for the evil rich and another that simply imitates whatever the Republicans are singing.

Maybe this time, the Democrats will break with tradition and offer an alternative. Maybe even a sexy alternative, in a 1040 sort of way.

The Hot Idea is a payroll tax cut. Advocates want it to be immediate, but temporary.

In the glamorous world of tax policy, the press-hungry income tax gets all the attention. So we forget that about 80 percent of all taxpayers shell out more in payroll taxes (Social Security and Medicare) than they do in income taxes. As a means of putting dollars into grateful voters' wallets, a payroll tax cut beats the hell out of slicing income tax rates.

Eliminating payroll taxes on the first $10,000 of earned income would give every worker a $765 bonus, $1,530 for two-earner couples or the self-employed. Ka-ching

It has other merits, like stimulating a shaky economy. "The best way to get consumers to buy more is put more money in their pockets," the Hot Idea's top guru, Robert Reich wrote in The American Prospect magazine. "And the easiest way to do this is by cutting payroll taxes."

Further, if it's implemented in a way so that employers also don't have to pay their share of the reduced payroll tax, and then businesses could have some added incentive to hire, or at least not fire.

Cutting the payroll tax is also very "progressive" because the payroll tax itself is so "regressive." Low-income workers pay proportionately much more than high income ones. After earning their first $84,900, high earners are done with paying Social Security taxes for the year; only the small Medicare tax is applied to all earned income.

Sound like an idea a presidential candidate could love? Well, John Kerry loves it and became the first Democratic candidate to latch on to it. For a man on the stump, comparing a payroll tax cut to the elimination of the estate tax, which benefits only the wealthiest 2 percent of American families, makes for some fairly decent sound bytes.

One obvious objection to the idea is that a onetime tax cut is essentially a gimmick. It's not certain to have any short-term impact and it makes no long-term contribution to the economy. The other objection is that a FICA cut could be seen as jeopardizing the sanctity of the Social Security trusts, which it doesn't.

It's not just lefties searching for centrist voters who are pushing the Hot Idea. The Business Roundtable, a policy-bastion of the corporate establishment, is hawking it too. They believe it's the quickest way to stimulate the economy, and the broadest, giving the largest possible number of taxpayers more money to spend or invest.

John Kerry, Robert Reich and the CEOs of the Roundtable – pretty strange bedfellows.

The Bushies aren't jumping into bed. But they've swiped the opposition's playbook before (can you say "homeland security") and maybe they'll do it again.

In the next adventure of Against the Grain, we'll poke around another John Kerry-Business Roundtable idea. But this time it's one the Bushies like and the Democrats have long dismissed – cutting the double taxation of corporate dividends. (Trust me, it's more interesting than it sounds.)

Dick Meyer, a veteran political and investigative producer for CBS News, is Editorial Director of CBSNews.com based in Washington.

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Against the Grain

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