One of the most substantive exchanges in the Democratic presidential debate on Dec. 19 occurred when Sen. Bernie Sanders (I-Vt.) challenged Hillary Clinton’s refusal to raise taxes on the middle class to fund paid family leave.
Sanders argued that a modest increase in payroll taxes included in a paid family leave bill he supports would be well worth the additional economic security for American families.
It’s a compelling point: As HuffPost’s Samantha Lachman reported, the FAMILY Act, introduced by Sen. Kirsten Gillibrand (D-N.Y.), would increase payroll taxes currently used to fund Social Security and Medicare by 0.2 percent, costing the median wage earner an estimated $1.38 a week. That is a small price to pay, the theory goes, for the guarantee of paid time off to care for a newborn or ailing relative.
Sanders hinted at a deeper rationale, however, when he noted that in opposing a middle-class tax hike, Clinton is “disagreeing with FDR and Social Security, LBJ on Medicare.”
He might have added that using payroll taxes to fund social insurance programs is not merely a matter of Democratic Party precedent.
President Franklin D. Roosevelt, at the very least, designed Social Security that way because of the enormous political advantages of dedicated payroll taxes. It is a strategy he memorably explained to Luther Gulick, a public administration expert and skeptic of the payroll tax system.
“I guess you're right on the economics, but those taxes were never a problem of economics. They are politics all the way through,” Gulick recalled the president telling him in 1941. “We put those payroll contributions there so as to give the contributors a legal, moral and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.”
With those taxes in there, no damn politician can ever scrap my social security program. Franklin D. Roosevelt
History has vindicated FDR’s vision: Social Security and Medicare’s popularity makes them less vulnerable to the kinds of political attacks routinely launched against means-tested assistance programs like Medicaid and Temporary Aid for Needy Families, the latter of which is a shadow of its former self. Proposing Social Security cuts is considered so lethal to a politician’s career that the program has a well-earned nickname as the “third rail of American politics.”
In fact, support for Social Security is so strong that notoriously tax-averse Americans would be willing to pay more to shore up the program’s finances. Seventy-seven percent of Americans surveyed by the National Academy of Social Insurance in June 2014, including 69 percent of Republicans, agreed that it is “critical that we preserve Social Security benefits for future generations, even if it means increasing the Social Security taxes paid by working Americans.”
By contrast, more than half (51 percent) of Americans think the government “can’t afford to do much more” to aid people living in poverty, according to a September 2014 Pew Research Center poll.
Of course, Social Security is the country’s largest anti-poverty program, lifting 21 million people out of poverty in 2014 alone, according to the Center on Budget & Policy Priorities. It also lessens the poverty of many people -- particularly seniors and people with disabilities -- who remain poor while on benefits, but would otherwise be even poorer. Paying higher payroll taxes to shore up the program, or expand benefits as Sanders has proposed, would amount to the government doing more to help people living in poverty.
But because Social Security is a universal program viewed as providing benefits earned through taxes, Americans can voice support for Social Security in one poll and oppose increasing benefits for the poor elsewhere without realizing the apparent contradiction.
Ben Veghte, who runs the National Academy of Social Insurance’s research and policy initiatives, notes that the dedicated nature of the payroll tax is especially important in an era of deep suspicion of government and, more broadly, institutions.
“Part of this is the lack of faith in institutions and Washington,” Veghte said. “People know that if they pay their payroll taxes, it goes to their Social Security and Medicare. There is just a lack of faith that income taxes will be used in their interests.”
Nowhere is that phenomenon more evident than in support for the programs among the ostensibly anti-government activists of the tea party movement.
A 2010 New York Times/CBS poll found that 62 percent of self-described tea party supporters believed “the benefits from government programs such as Social Security and Medicare" are "worth the costs."
In fact, tea party support for payroll taxes underscores the importance of taxpayers believing they have the “legal, moral and political right” to Social Security benefits that FDR hoped to create.
Tea party activists’ professed opposition to “government spending” writ large is really directed at perceived handouts for “freeloaders,” according to a Harvard study of the tea party movement published in March 2011.
Tea party supporters do not view Social Security and Medicare the same way as other government spending, because they believe the pension and health insurance programs provide earned benefits that all workers pay for with taxes.
“I’ve been working since I was 16 years old, and I do feel like I should some day reap the benefit. I’m not looking for a handout, I’m looking for a pay out for what I’ve paid into,” Nancy, a Massachusetts tea party supporter, told the Harvard researchers.
It also explains the infamous alleged sighting of one or more tea party demonstrators protesting the Affordable Care Act with a sign that said, "Get your government hands off my Medicare." Whether the oft-cited vignette is true or not, as David Frum writes in The Atlantic, it does encapsulate the perception among many Obamacare opponents that by using Medicare savings to fund a new insurance program, President Barack Obama was taking from the deserving -- Medicare beneficiaries -- to provide health care for undeserving freeloaders -- the uninsured.
There is also the practical matter of a dedicated tax and benefit structure avoiding the yearly budget fights that have lately been occurring at more frequent increments.
FDR and LBJ wanted to “try to insulate these programs from annual appropriations battles,” Veghte said. “Nobody is going to pay these taxes if you do not know that they are walled off.”
Clinton’s wariness of raising taxes on middle-class earners is not without merit. The flat payroll tax is regressive in that the cost of contributions is felt more significantly by people with lower earnings, whereas income tax rates rise progressively as earnings levels increase.
But the benefits of such a paid family leave program go overwhelmingly to middle- and lower-income people as well, since the costs of care would be felt much more acutely than by upper-income earners in the absence of such a program.
Nobody is going to pay these taxes if you do not know that they are walled off. Ben Veghte, National Academy of Social Insurance
Similarly, Social Security has a progressive benefit formula that replaces a larger proportion of workers’ pre-retirement earnings the lower down on the income scale they are.
Clinton has yet to lay out the specifics of her paid family leave plan. Her campaign has implied she would fund paid family leave through taxes that apply to the wealthy exclusively. She has promised that she will not raise taxes whatsoever on households with earnings of less than $250,000 a year.
Political considerations aside, the Center for American Progress, which is commonly viewed as an arm of the Democratic Party and has strong ties to the Clinton campaign, maintains that funding paid family leave is eminently doable without increasing middle-class taxes.
The vast majority of countries fund their paid family leave programs through payroll taxes, according to the Center for American Progress. California, New Jersey and Rhode Island, which have state-level family leave programs, do so as well.
Australia is one country that funds family leave through general revenue, rather than a dedicated tax on all workers.
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