Greg Mankiw reads my mind

Though I dont have any permalinks to prove it, I totally came up with this idea first:

The tax system is probably the best vehicle to accomplish the Dems' goal. One possibility would be to reduce the payroll tax rate and to make up the lost revenue by increasing, or perhaps even eliminating, the cap on taxable payroll. That would benefit, approximately, the bottom 90 percent of the income distribution.

Granted my idea for this was part of a way to solve the social security problem, but yeah, I totally called this like a few years ago.[1] :)

While Greg notes that there'd be some deadweight losses at the top, the big deal for me is that if you remove the cap, with the added revenue base you have the opportunity to lower the overall rate. Ideally, to me, you'd make the whole thing revenue-neutral when putting it through, but even if you just lower it a little, you immediately reduce labor costs across the board for the 90 percent of the income distribution currently affected. With that extra margin no longer taken off the top, companies could do any number of things (like paying for health care, increasing wages, hiring new people, more R&D, more dividends, etc). So whatever deadweight loss you'd get at the top I wager the magnitude of the positive sign at the bottom would be much greater on net (and remove a distortion in the labor market to boot).

fn1. Seriously!

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