Monday, August 22, 2011

Republican Tax Increases

Alex Tabarrok is on the Republicans today for wanting to increase taxes. I'm not in full agreement with him about tax increases in general (he thinks they should not be increased in general, and that less government and low taxes are roughly synonymous), but I wholeheartedly agree with the notion that the temporary payroll tax cuts proposed by Obama should not be allowed to expire.
Some things that puzzle me about the issue:
1. Payroll taxes are regressive (they affect lower-income workers more). Why would they want to raise payroll taxes during economic recession?
2. Payroll taxes are a direct impediment to private sector hiring. Why would they want to raise payroll taxes during economic recession?
3. One could argue that they aren't technically raising taxes; they're allowing existing cuts to expire, but the Republicans have argued that allowing tax cuts for the rich to expire would themselves be tantamount to tax increases. Why would they want to raise payroll taxes during economic recession?
4. Republicans have argued against cap and trade (not technically a tax) as well as against carbon taxes, both of which have been supported by economists of both parties as good ways to deal with emissions (subsidies for clean technologies that Republicans support are not as good) on the grounds that any tax on energy would disproportionately hurt low-income working Americans. So.... why would they want to raise payroll taxes during economic recession?
Lining up for payroll tax increases also seems to be a political no-win for Republicans politically. It only seems to cement the narrative that they don't really care about the economy itself, but rather that they represent the rich (sometimes at the expense of the poor).

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