To what extent are Social Security taxes really “taxes” in the traditional sense? Do the lines in the sand make sense? The question is not as odd or revolutionary as it may sound, and the answer has a significant impact on all sorts of debates. For example, opponents of President Bush’s first-term tax cuts often included payroll taxes in their incidence calculations.
Jesse provides the shorter version of Hassert’s theme:
Kevin A. Hassett attempts to make the argument that payroll taxes aren’t taxes … because you eventually derive a benefit from them.
Hassert’s discussion pales in comparison to the discussion provided by Richard and Peggy Musgrave in Public Finance in Theory and Practice. Hassert also did not finish the line of thinking with respect to the 2005 Social Security debate – so let me. Bush’s Social Security proposal cuts the benefits of young workers drastically but does not reduce the payroll tax rate. In other words, it is a backdoor tax increase on young workers. The Bush fiscal agenda does appear to be tax cuts for rich older people paid for by deferred employment tax increases on young workers.