“Look, Ramesh, This Isn’t Hard,” is the title of Giovanetti’s latest post. (He goes on to complain that I’m not giving him enough respect.) We have been discussing the possibility of a Social Security reform plan that includes applying a lower tax rate to a larger amount of wages. He says that’s a “tax increase.” In his latest post, he argues that it is a tax increase for some people. That’s obviously true–but that can’t be our criterion. If it were, we would have to say that a revenue-neutral flat tax was a “tax increase” because some people would certainly lose more in deductions than they would gain in a lower rate. He also points out that raising the cap, even on the terms I mention, would raise the top marginal tax rate. That’s true, too–as the original editorial he’s criticizing acknowledges! That’s why the editorial said that it was something we should try to avoid. But that’s doesn’t mean that it’s a net tax increase.
Giovanetti asks why Democrats would be interested in a revenue-neutral change to payroll taxes. Perhaps because they like making taxes more progressive, or want to impose some pain on Republican constituencies as part of a deal that includes elements–such as cuts in future benefits–that they find unpalatable? Finally, he frets that loose talk such as mine will lead inexorably to a deal even I would oppose. I don’t see why it should, and he doesn’t provide any reasons for thinking that it would.