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Social Security, Medicare payroll taxes are job killers

POSTED: September 9, 2011 1:00 a.m.

Our Social Security and Medicare systems must be changed for the sake of the nation. It simply cannot continue as it is presently designed.

The payroll tax to fund these programs is 15.3 percent, split between employee and employer. A person who is self-employed pays the entire sum themselves. The Social Security money goes to its own federal fund from which workers draw a supplemental pension upon retirement. The system at present is basically a pyramid scheme, designed when population growth was much higher and people didn't live as long.

Payroll taxes even encourage people to invest in stocks instead starting businesses. Let's say I have $1 million. If I paid employees is an investment, I would be taxed for it. I could, however, invest that $1 million in stocks and avoid this particular tax all together. No wonder small business is disappearing while people invest in stocks and overseas companies.

There's some grumbling about the income tax being unfair, in part because 47 percent of the population doesn't pay it. That is a little deceiving because all workers pay federal payroll taxes. Actually less than 10 percent of Americans pay no net federal taxes.

Some people find the progressive nature of income tax unfair but payroll taxes are worst in that they are regressive. Only the first $10,600 of income is subject to payroll taxes. So a person making that much pays at tax of 7.65 percent while someone making $212,000 pays a tax of 3.83 percent. Those with the least are taxed the most.

Some consider the present payroll tax system fair since the payers get their Social Security contributions back. Well, it isn't a personal investment. The payer cannot will that money to his or her children. Social Security is somewhere in between subsidized insurance and welfare, and I wouldn't argue with either definition.

Private retirement policies have been suggested as an alternative. They would be politically impossible to pass. People are afraid to trust the stock market with their retirement. Even today many people have been forced to delay retirement because they lost so much during the recession.

Private accounts guaranteed by the federal government may be workable, but they could become just another bailout in the waiting. In any event, our most immediate problem is how the program is being funded.

Society has an interest in continuing Social Security, which currently keeps 40 percent of our seniors out of poverty. If we don't continue the program in some form, we'll end up with starving seniors unable to pay their medical bills. Social services for these seniors would strain state budgets. With more people unable to pay for medical care the cost of medical care would go up for those who can pay. Social Security is an investment in stability from which the whole nation benefits.

Since the program is in society's interest and the money does not really go to individual accounts, there is no reason we shouldn't fund it differently. I'd suggest a flat payroll and capital gains tax. Presently, up to 70 percent of the financial wealth in this nation is not being taxed by Social Security. If we did so, and kept the maximum benefit the same, we could potentially cut the total flat tax rate from a total of 15.3 percent down to 4.6 percent.

This could potentially mean a tax cut for up to 94 percent of Americans. The employee deduction might drop from 7.65 percent to 2.3 percent. Self employment tax might drop from 15.3 percent to 4.6 percent.

There would also no longer be an artificial advantage to investing in corporate stock versus a small business. It could even be designed to be revenue neutral taking no more money in taxes from the free market than it does now. Imagine what all that could do for job growth.

If this system is unfair, we could just eliminate payroll taxes and fund Social Security and Medicare through income taxes, like we do with all other federal budget items. At least that wouldn't directly tax job creation and would eliminate the regressive nature of the payroll tax.

The present way of collecting Social Security interferes in the free market in such a way as to artificially make stock investment and overseas job creation much more attractive than job creation here at home. We have a sad state in politics. When we have a program in trouble one side wants to cut it despite the consequences, the other wants to subsidize it. Why aren't we trying to fix it?

Brandon Givens is a Hall County resident whose columns appear frequently.



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