Larry Kudlow
One of the defining characteristics of the presidency of George W. Bush has been that he says what he means, and means what he says. Our CEO-like MBA president has always communicated his vision in clear and simple terms. Once he establishes a policy, he moves rapidly to implement it with all the political force he can muster. You could even argue that Bush has been the clearest and most reliable presidential-policy maker since Ronald Reagan -- one would have to go back many more decades to find another chief executive like him. That?s why his latest gambit on Social Security payroll taxes is so hard to fathom.

Bush clearly stated after last November?s election that his visionary Social Security reform plan to include personal savings accounts would not countenance payroll-tax increases. Just this week he undercut that position when he said an increase in the payroll-tax cap -- now $90,000 -- would be ?on the table? in forthcoming negotiations with Congress. White House spokespeople have tried to suggest that an increase in the payroll-tax cap is not a new tax, and that only a rise in the payroll-tax rate would constitute a tax hike. This is nothing but doublespeak. The American public will see it for what it is.

A front-page editorial in the New York Sun referred to this episode as ?sins of the father.? Papa Bush, you may recall, pledged no new taxes. He then broke that pledge with a huge tax hike in his second year in office. That broken promise, along with the added tax burden on working Americans, proved politically catastrophic as Bush 41 was defeated by Bill Clinton.

Why has Bush 43 moved into this fudge-factor trial-balloon zone? It is a politically dangerous space. His proposal could also have highly negative economic consequences.

When John Kerry floated a payroll-tax cap increase during the last election campaign, esteemed Harvard professor Martin Feldstein calculated that a family making $110,000 a year would face a tax increase of more than $2,700, essentially a 20 percent hike. According to Americans for Tax Reform, a new tax cap of $150,000 would increase the combined employer-employee tax burden by roughly $7,400. The Heritage Foundation estimates that raising the cap would directly increase taxes for 7 million middle-class families.

Wall Street economist Michael Darda has also turned in some startling numbers. Eliminating the $90,000 ceiling on payroll taxes would boost the top marginal income-tax rate to 47.6 percent from 35 percent. Darda estimates that after-tax returns on marginal work effort would fall from 65 cents to 52.4 cents on the extra dollar earned, a 20 percent decline.


Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.
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