Replacing Social Security With Carbon Taxes

March 16, 2009

Hendrik Hertzberg gets stuck in to the fiscal-policy debate this week, with a proposal to essentially abolish payroll taxes and replace them with various sorts of carbon and consumption taxes. It’s not a bad idea: payroll taxes are horribly regressive, and, as Hertzberg notes, they actually exceed income taxes for three quarters of the US population.

Hertzberg does his best to paint this proposal as having bipartisan support, but political realities in Washington mean that Congressional Republicans would never actually vote for it. It’s certainly ambitious: it would not only introduce a large-scale carbon tax but would also essentially abolish the idea of individual Social Security accounts. Given that radical Social Security reform and carbon taxes both lie on the outer edge of the politically feasible, doing both at once seems needlessly ambitious.

But as Rahm Emanuel has famously said, a crisis is a terrible thing to waste, and if this kind of major fiscal-policy reform can ever be implemented, now is surely the time. The trick, I think, would be to connect it more directly to the crisis we’re now facing: Hertzberg’s arguments could have been made — and, indeed, have been made — at any point over the past 20 years. If the Obama administration can compelling present this kind of fiscal reform as a smart response to this particular crisis, then maybe it has a glimmer of hope.

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