Thanks to last fall's budget debate, Democrats in Congress are getting away with murder -- using the so-called "tax fairness" issue to convince Americans that Republicans are the "party of the rich."
A recent Harris Poll found that by a margin of 62 percent to 36 percent, Americans believe Republicans were wrong to oppose tax increases on the wealthy; and by a 50 to 30 margin, they think congressional Democrats were more right on how to cut the deficit than Republicans. Emboldened by their success with this issue, the Democrats plan to renew their call for a "millionaires' surtax" when Congress reconvenes.
This poses a critical challenge to me and my fellow Republicans. Unless we propose a politically attractive alternative, we will remain on the defensive -- and eventually lose outright the political debate over taxes.
We can take the political and economic offensive again -- by making Social Security payroll tax cuts a centerpiece of the economic empowerment agenda.
The currently controversial "empowerment" initiatives are aimed at giving individuals more control over their own lives. What could be more empowering than letting workers keep more of the wages they have earned?
The American dream still eludes too many of today's working families. They are finding it harder to achieve the same standard of living that their parents enjoyed. And the chief cause is the skyrocketing of federal taxes: today's median-income families face an effective tax rate (income and payroll taxes combined) more than double what their parents faced in the 1950s.
Throughout the 1980s, Republicans worked to reduce that tax burden. The 1981 Reagan tax bill slashed income tax rates by 25 percent for middle-income Americans, and the 1986 tax reforms removed 4 million poor taxpayers from the tax rolls altogether. The people responded by giving three consecutive landslide victories to the GOP.
At the same time the Reagan-Bush tax cuts were reducing the burden of income taxes, the 30 percent increase in payroll tax rates legislated in 1977 under Jimmy Carter kept the middle-class tax burden excessively high. Today, three out of four workers pay more in payroll taxes than they do in income taxes.
This tax is punishing working-class Americans and crippling the economy as well. It raises labor costs, inhibits job creation, cuts profits and reduces the availability of capital. It is a direct tax on America's ability to compete.
Social Security is collecting more taxes than are needed to pay benefits to seniors. This revenue buildup -- proceeding at a rate of more than $1 billion per week -- is used to subsidize the rest of the federal budget.
Last December, my colleague, Sen. Daniel Patrick Moynihan, D-N.Y., proposed returning Social Security to a pay-as-you go system in which income roughly matches expenses, leaving the money in the hands of the people who earned it. To date, the Democratic Party has been slow to embrace the Moynihan plan. This inaction is giving the GOP a golden opportunity to take back the fairness issue. The Democrats can go ahead and tax millionaires all they want, but it won't do anything to reduce the burden on middle-income families.
President Bush ought to seize this opportunity to take command of the domestic economic agenda -- by combining his own plan to cut capital gains taxes with the Moynihan plan. For a worker who earns the maximum wage taxed for Social Security purposes (an estimated $54,300), or for a couple with combined earnings at this level, the annual savings would add up to $669 under pay-as-you-go financing.
The newly enacted budget reforms make it relatively easier to cut Social Security taxes than other kinds of taxes because it would not trigger an automatic reduction in spending to offset the revenue loss. And from an economic standpoint, any negative impact of the rise in government borrowing will be offset by the stimulative impact of lower payroll taxes on wage earners and small businesses. Former Treasury economist Gary Hufbauer estimates that this pro-growth tax cut would create 1 million new jobs over the next four years.
Even without the Social Security tax surplus, the deficit problem is manageable. According to the Congressional Budget Office, the non-Social Security budget deficit will decline from 5.6 percent to 1.9 percent of gross national product over the fiscal 1991-95 period.
House Majority Leader Richard Gephardt said recently that, to him, the key is "not to beat up on the rich, but try to get the poor and middle class moving up quickly." The rest of the Democratic party is way behind on this issue -- and that gives the GOP a historic window of opportunity. We should not let it pass.
ROBERT W. KASTEN JR. is a Republican senator from Wisconsin.