William McGurn casts a skeptical eye on Obama's tax plan in today's Wall Street Journal:
Not everyone is persuaded. Andrew Biggs is a scholar at the American Enterprise Institute and a former Social Security Administration official who has written a great deal about Mr. Obama's plans on his blog (AndrewBiggs.blogspot.com). He notes that to understand the unintended consequences, it helps to remember that while people at the bottom pay a higher percentage of their income in payroll taxes, they are accruing benefits in excess of what they pay in.
"It's interesting that Mr. Obama calls his plan 'Making Work Pay,'" says Mr. Biggs, "because the incentives are just the opposite. By expanding benefits for people whose benefits exceed their taxes, you're increasing their disincentive for work. And you're doing the same at the top of the income scale, where you are raising their taxes so you can distribute the revenue to others."
Even more interesting is what Mr. Obama's "tax cuts" do to Social Security financing. As Mr. Biggs notes, had Mr. Obama proposed to pay for payroll tax relief out of, well, payroll taxes, his plan would never have a chance in Congress. Most members would look at a plan that defunded a trust fund that seniors are counting on for their retirement as political suicide.
And that leads us to the heart of this problem. If the government is going to give tax cuts to 44% of American based on their Social Security taxes -- without actually refunding to them the money they are paying into Social Security -- Mr. Obama will have to get the funds elsewhere. And this is where "general revenues" turns out to be a more agreeable way of saying "Other People's Money."
Oh, as long as it's going to paid for by "other" people I guess there's no problem. As long as you're not one of them.
If there is a ray of hope--however slender--in how Obama would manage the economy, it's that one of his key advisors is former Fed Chair Paul Volcker. Volcker is a Democrat, but he is a proponent of a strong dollar and he demonstrated that he wasn't afraid to administer the tough monetary medicine the country needed to pull out of the stagflation slump of the late 70s. Let's hope that he continues to have Obama's ear.
UPDATE-- Larry Kudlow has more on Volcker at The Corner on National Review Online:
Of course, Volcker has a great reputation as a deficit-cutter and a strong-dollar man. What's more, as a long time financial advisor who was president of the New York Fed, undersecretary of the Treasury, and of course Fed chairman, Volcker's money knowledge would gain bipartisan support to solve the financial crisis, which will surely spill over into next year. Volcker would attract bipartisan support because of his superb reputation. He is not a supply-sider, nor did he agree with the Reagan tax cuts in the 1980s while he was Fed chairman. But he did work well with the Gipper. Reagan's supply-side tax cuts along with Volcker's tight money to slay inflation produced a strong economic recovery and proved all naysayers wrong.
Volcker will unfortunately agree with Obama that the top tax rate can be raised. Not good. But he's very good on tighter spending and King Dollar. And he does have vast knowledge of the intricacies of world credit markets.