Why America Needs a Payroll Tax Holiday
Pete V. Domenici and Alice M. Rivlin write:
This morning, a bipartisan task force that we co-chair unveils a bold, comprehensive plan to dramatically reduce America's deficits and debt and strengthen our economy, enabling the nation to reclaim its future. We urge the nation's leaders to seriously consider it.
The strong economy that has made the United States the world's leading power is gravely threatened. Federal debt will soar in the coming years under current policies, endangering our prosperity and our leadership. The national debt will overtake the economy itself, increasing our dependence on China and other foreign lenders, draining our resources and reducing our living standards. This risks economic crisis and threatens to turn America into a second-rate power.
But this dire scenario is not inevitable. We can restrain the debt, rebuild our economy, restore our independence and ensure that America remains a world leader. Restraining the debt can give us a leaner, more-effective government, a more efficient health system and a far simpler tax system more favorable to economic growth. Moreover, we can put the budget on a sustainable path without threatening the fragile recovery.
Our plan shows that a group of Democrats and Republicans (including 19 former White House and Cabinet officials; former Senate and House members; former governors and mayors; and business, labor and other leaders) can craft a viable blueprint to tackle the nation's most serious long-term economic challenges.
Here are the highlights:
To ensure a more robust recovery, we propose a one-year "payroll tax holiday" for 2011, suspending Social Security payroll taxes for employers and employees. We also would phase in the steps to reduce deficits and debt gradually beginning in 2012, so the economy will be strong enough to absorb them.
We would stabilize the debt held by the public at less than 60 percent of gross domestic product, an internationally recognized standard; reduce annual deficits to manageable levels; and balance the "primary" budget (everything other than interest payments) by 2014.
We would dramatically simplify the tax system, establishing individual tax rates of 15 and 27 percent (from the current high of 35), cutting the corporate tax rate to 27 percent (from 35 today), ending most deductions and credits while simplifying the rest, and ensuring that nearly 90 million households no longer have to file returns. To reduce the debt, we would supplement our spending cuts with a 6.5 percent "debt-reduction sales tax."
