Make the Holiday Permanent

Well, Hell’s bells, some Senate Democrats are supporting a good idea. It happens so rarely that it is worth taking note. Their idea is to grant a payroll-tax holiday for one month.

That’s right: no Social Security and no Medicare premiums for a solid thirty days. Not only is the worker to be unshackled from these taxes, but the employer too. If the idea goes through, for one shining one-twelfth of the year, we can all live without these ghastly invasions eating away at paychecks and payrolls.

Promoting this tax holiday is Tom Carper of Delaware along with Pete Domenici of New Mexico, who first suggested it. It is being pushed as a way to break the stimulus gridlock, which came about because each party wants to use the stimulus to reward its own constituents without allowing the other party to take credit for helping its constituents. But a payroll tax holiday is something that everyone can and should agree on.

For years, the tax-cut debate has been bogged down in a futile argument over which kind of tax cuts stimulate. Influenced by supply-side ideology, the Republicans stand ready to support capital-gains tax cuts and a flattening of rates. The Democrats, meanwhile, warm only to those cuts that directly affect workers’ paychecks, and thus favor (but somehow never pass) the middle-class tax cut that Clinton used to talk about.

Each side accuses the other of using fiscal policy to play politics, and each is certainly guilty. But the Democrats are wrong to say that cutting capital-gains, lowering rates, or eliminating the Alternative Minimum Tax only helps the rich. Cutting penalties for producing yields benefits for the entire economy. At the same time, Republicans are wrong to dismiss the effect of tax cuts for workers. Keeping private property private is the essence of free enterprise, the most productive system of economics known to man.

The answer to this debate is to recognize that the best way to cut taxes is to cut them anywhere and everywhere. An analogy would be an effort to curb a crime wave. Is it better to stop burglaries or car thefts? So long as authorities debate this, the crime wave continues. The answer is to cut both, or, if that’s not possible, just flip a coin and stop one or the other.

The payroll-tax holiday has the beauty of clarity. It would permit American workers and business to retain ownership to some $40 billion that would otherwise be forked over to the government. The money could then be spent, saved, or invested, doing far more good in the private sector than the same amount sent to Washington has ever done. In calling this tax cut a stimulus, the politicians are implicitly recognizing a great truth: these taxes are a drag on the nation’s economic life.

The idea of allowing workers and business to stop paying into Social Security for one month is great for another reason: it gets us on the only path to reforming that system. Both the people who believe in "privatization" and those who want a bailout (sometimes its difficult to tell them apart) have completely overlooked the solution of allowing people to opt out.

After the holiday is over, a deal could be offered to workers. Those who want to receive Social Security when they retire can continue to pay. Those who do not can just stop paying in, and thereby relinquish the rights they have to the money already put into the system (and long ago spent). Let workers make their own uncoerced choice. The system will remain financially viable, and millions of people will be let off the hook from an operation that taxes so heavily and pays so little.

The same is true of Medicare. The market economy now offers a huge range of medical insurance packages that offer security in old age. Those who drop out of the government system will be in a position to pay premiums for private coverage, if they desire it. Again, the solution is to let people opt out, not just for one month but for forever. This is a sure path to reforming the system and lightening its financial burden on the taxpayer.

A tax holiday is better than a rebate because it eliminates the absurd costs associated with sending money to DC only to have it sent back again in the new form. A rebate also tempts people into being grateful to politicians when they should be angry at them for taxing them in the first place. A tax holiday also underscores the essential issue of ownership: money earned by workers belongs to the workers themselves.

So here’s to the payroll-tax holiday. May it have a very long life.

Llewellyn H. Rockwell, Jr. [send him mail], is president of the Ludwig von Mises Institute in Auburn, Alabama, and editor of

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