Thomas L. Knapp

Tom Knapp is the publisher of Rational Review.


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In the spirit of compromise ...
by Thomas L. Knapp

Last April, in this very 'zine, I contended that libertarians are the real moderates. I've seen nothing since then which would tend to disprove that contention and much to support it. Some people, however, persist in portraying libertarians as "extremists," and I've been waiting for an opportunity to disprove that claim beyond any shadow of a doubt.

That opportunity arose last week in the form of duelling "economic stimulus packages," one from the Bush administration and one from the Democratic "opposition."

The administration wants to enhance its sorry package of income tax cuts and do away with double taxation of stock dividends -- both worthwhile initiatives aimed at the middle class and the business establishments whose good opinions are necessary to re-electing Republicans.

The Democrats want to take a "holiday" from the payroll taxes that are theoretically linked to Social Security and Medicare -- another worthwhile idea, aimed at the same targets but with enough of a "scattergun" effect to also encompass the "working poor" whom the Democrats claim to care so much about.

Two packages, and a libertarian alternative -- an alternative which is in the pure spirit of practical political compromise.

Let's do both.

Let's make those miniscule income tax cuts that the administration wants. Let's get rid of the dividend tax. And let's take a "holiday" from the 15.3% Social Security payroll tax, the Medicare tax, etc.

Want more compromise? Fine. In order to appease the Republicans, I'm willing to let them cut income taxes even more. In order to appease the Democrats, I'm willing to make that "holiday" a permanent repeal.

See? Libertarians aren't such extremists. We can work and play well with others. Think about it -- I just offered to give both the Republicans and the Democrats what they claim to want ... and I didn't even ask for any concessions!

Okay, so I'm being a bit disingenuous. Republicans and Democrats alike each want to do one, and only one, of these things. Some putatively libertarian institutions seem to be falling for the idea that one, and only one of them can be done, and choosing up sides in just the way that "libertarians are disgruntled Republicans" hecklers would predict.

I was appalled by Monday's daily commentary from the Cato Institute, in which Andrew G. Biggs argued vehemently against the "Dem's (sic) risky tax scheme."

Biggs contends that the "holiday" suggested by the Democrats "is unlikely to boost the economy, and would set a harmful precedent for Social Security."

And what precedent is that, exactly?

"[T] the rebate would undermine the critical link between contributions and benefits that has kept Social Security a contributory social-insurance plan rather than a mere 'welfare' program," writes Biggs. "This link ensures the system neither shortchanges retirees nor fails to live within its means."

There are a couple of problems with this argument. The first is that Social Security is not, and never has been, a "contributory social insurance plan." It is, and always has been, a particular welfare program linked to a particular tax.

This isn't abstruse libertarian theory, although libertarians (including Milton Friedman -- grab your copy of Free to Choose and read the chapter on Social Security, Mr. Biggs) have been saying it for years: it's long-established legal doctrine. The courts have ruled that Social Security benefits need not in any way correlate to payments into "the system" -- that the payroll tax is simply a convenient way of earmarking funds.

As far as "living within its means" goes ... well, if Mr. Biggs has seen, perhaps even touched, Al Gore's "lockbox," he's the first one to have done so. The Social Security "trust fund" can't live within its means because it doesn't have any means. The payroll tax invariably ends up flowing into, and out of, the general revenue coffers at budget time. The lockbox is filled to overflowing with IOUs based on the "full faith and credit of the United States." The Sioux, among others, would probably have some colorful language at hand with which to describe the reliability of that faith and credit.

Being a moderate, of course, I'm willing to allow as to the wisdom of "personal retirement accounts" and other gimmicks versus the current system ... but Mr. Biggs seems determined to snatch defeat from the jaws of victory, vigorously defending the Republican "middle way" against a significant step toward ending Social Security.

Once the welfare program is de-linked from the tax, the standard rallying cry of those who want to "save" the welfare program begins to ring hollow. I can't count the number of times I've heard someone smugly mention that since they've "paid into the system" they are "entitled to the benefits," despite the fact that no such thing is true in the real world, or even in the Dr.-Seuss-on-mescaline world of "official" government policy.

Get rid of the payroll tax, and Social Security is exposed as what it has always been -- pork, duly appropriated, year after year, for the purpose of purchasing the votes of the nation's wealthiest demographic, the elderly.

I'm not so moderate that I'm willing to forego such a coup. If we can't, in the spirit of moderate compromise, let the Republicans and Democrats both have their way on this, then the Democratic plan wins hands down. It may or may not be as economically sound, but it's a significant step toward honesty.