Real Americans redistribute: The payroll tax debate's dirty secret
The Washington Post, December 14, 2011
Can we talk for a minute about redistribution of income? Just between us?
Republicans were aghast when President Obama's original proposal to extend and deepen payroll tax cuts for 160 million workers would have been paid for by a surtax on America's 350,000 top earners.
Egad! cried the GOP. Redistribution is robbery!
But the real taboo in American politics isn't redistribution; it's talking honestly about redistribution. Because as a matter of tradition and public policy we quietly redistribute massive sums each year.
We take billions from struggling young families earning $35,000 who can barely make ends meet, let alone save for college or retirement, and use the money to pay for Social Security and Medicare benefits for seniors who earn more than $100,000. We do this even though those seniors are getting back far more than they ever paid into the system.
We take billions from high-income blue states like New York and California, and ship them via federal benefits and subsidies for farming and oil to poor red states like Alabama and Oklahoma. We do this even though the recipient states mostly vote Republican and moan endlessly about getting Uncle Sam off their backs.
We give a hefty housing subsidy via the mortgage-interest deduction to Bill Gates—while Gates's maid, assuming she rents, gets no housing subsidy at all.
Then there's Medicare's secret. Few people realize that Medicare spends wildly different amounts per senior depending on where the senior happens to live. The most famous example, from research by John Wennberg, found that Medicare spends 2.5 times more per senior in Miami than in Minneapolis (even after adjusting for regional differences in input costs, such as for office rents). Yet there's no difference in quality or health outcomes associated with this extra spending.
In other words, Medicare redistributes billions from regions where doctors practice cost effectively to regions where the local Medical Industrial Complex pads its income with excess services and procedures.
(This, by the way, is the hidden reason that calls for Medicare vouchers are so tricky and potentially explosive—because setting sums for the vouchers would expose the redistribution that now takes place within the program. Do you honor past practice and give a Minneapolis senior a voucher worth one-third of what his cousin in Miami gets? You see the difficulty—not to mention the Medicare riots—that lies down this path).
There's more, but you get the point. It's a little late in the day to say we can't redistribute income in the United States. It'd be more accurate to say that redistribution is the American way. Real Americans redistribute!
Still, Republicans are determined not to admit this. Admitting that redistribution is a proud American tradition, after all, might encourage more of it. And when the 99 percent is already angrily eyeing the 1 percent, that's a scary thought.
Which is why Obama's gauche proposal had to be ushered off the stage at once (and replaced with the bill the House passed Tuesday night, which freezes federal pay to help fund the tax cut instead). If I have the math right, Obama's plan—which Senate Majority Leader Harry Reid may yet bring back—would have top-earning Americans picking up the tab for, on average, 457 workers' tax break for a year.
Adopt a struggling fellow American, the White House was effectively saying. Or 457 of them, while you're at it.
Now, I'm sure Republicans would have had no problem with this idea if it had been a voluntary initiative. If, for example, top bankers had come together in the holiday spirit to say they would each cut a $1,500 check to 457 everyday Americans, Republicans would have toasted the virtue of private charity.
Funny, though, no one on Wall Street thought to come forward with this kind of plan. Guess they've been pretty busy.
When Paul O'Neill was Treasury secretary under George W. Bush I asked him about all this. "If we want to have a conversation about equities, then we ought to have a complete conversation," O'Neill told me. "It should not be about health care. It shouldn't be about education. It should be a broader conversation about how much resources should be provided from those who have something to those who have less or nothing.
"That's the clean conversation," he added. "It's about purchasing power for the things one needs to lead a decent and civil life. That's the question."
That's my kind of Republican. But I'd bet a million bucks that today's GOP wouldn't agree to a Lincoln-Douglas debate on this question. The president ought to challenge them to one and see.