Another Unicorn Peddler (Payroll Tax)


It never ceases to amaze me how people get “column inches” in a paper like the NYT peddling nonsense like this gent is doing.  Oh wait; it’s not that hard to figure out — the media is not about reporting or even opinion, it’s about shaping opinion — and the truth, even arithmetic, be damned.

WE have two political parties in America, runs a saying that conservatives like to quote. One is stupid, the other is evil. And when they join forces to do something that’s both stupid and evil — well, that’s what we call “bipartisanship.”

The payroll tax holiday that passed Congress in the winter of 2010 was a rare exception to this pessimistic rule. Cutting the payroll tax was good short-term politics for both Democrats and Republicans: it was a tax cut that liberals hoped would double as stimulus, and a boost to the middle class that conservatives could support without embracing new federal spending. But more important, it opened the door to what would be good long-term policy as well — because more than almost any feature of the American tax code, the payroll tax deserves to be pared away into extinction.

Ross goes on to do what so many other so-called “populist” commentators do — he conflates the two components of the payroll tax and then talks about getting rid of one of them.

That’s intentionally dishonest and Ross knows it.

The Payroll Tax has two components, both of which are intentionally designed so that you, the employee, only “see” half of them.  Both halves, however, come directly out of your wages even though employers are forbidden by federal law to itemize the second half (the “employer contribution”) and show it to you on a pay stub as a deduction off what you would otherwise be paid.

Social Security has a number of very serious and I would argue intentional design features that are both racist and sexist.  For example, a black man is expected to live to be 70.8 years, while a white woman is expected to live to 81.2 years.  If we presume an equal retirement age of 65 (which the Social Security system does for equal benefits, assuming equal earnings history) the black man will collect benefits for 5.8 years, while the white woman will collect them for 16.2 years, or 279% of the black man’s Social Security payments.  Note that a large percentage of the difference is found in things that kill black men before they reach 65; those people get exactly nothing.

All paid in, however, the exact same amount of money.

That’s racist and sexist — and intentional.  Those who pay in and get nothing wind up being the net “suckers”; they have no choice but to pay, but they get zero since their payments do not have their name on them — they’re just a tax.

In addition Social Security is “progressive” in that the amount of benefit you get from further contributions once you reach the minimum requirement is less, on a ratable basis, than what you paid in.  That is, the lower-income person gets a larger benefit in proportion to their paid-in capital than the higher-income does.  Further, the FICA cap and payout cap means that beyond a certain level of contribution, which is reasonably modest and occurs in the middle class income band, you get nothing further at all.  Of course you pay nothing more either, so that, I suppose, is “fair.”

Nonetheless Social Security is fixable without a lot of drama, although we certainly should talk about whether the program should exist at all, or whether it should exist in its present form.  The reality is that the payroll tax has become a convenient slush fund from which the government steals, and which causes the reported deficit to be smaller than it really is.  It was responsible for Clinton’s so-called “Surplus”, which in fact never happened — he simply stole the amounts paid in from the payroll tax that were not immediately disbursed as benefits!  Every President since Ronald Reagan has done the same.

To fix Social Security removing the payroll tax abatement is required, as is indexing the full benefit retirement age to longevity.  If we want to fix the sexist and racist elements as well, we could index the retirement age by race and gender; this would work because the persons with the lower life expectancy would also pay in for fewer years and likely would have lower benefits, but they would last for the same average amount of time as does someone who is of a longer-lived race and/or gender.  This could be adjusted on a five-year sliding scale to account for changes in demographics.

The real problem with the payroll tax is found in Medicare.  The Federal Government went from spending $53 billion on all medical services in 1980 to about $850 billion last year.  The average retiree gets between three and five dollars out from every dollar they “contributed” during their working years.  To put this in perspective the payroll tax is 3.8% for Medicare (both halves) and if we look at the average working wage of about $50,054 (all workers, all races, US Census Bureau) then the payroll tax for Medicare is $1,902 annually (both halves.)  Over a 45 year working life this amounts to $85,592.34.

How long does this amount of money last? 

The fact is that the average expense that Medicare puts forward for a given retiree is close to $300,000!

There is simply no way to make the books balance given these facts; to make the books balance either benefits must be cut by more than two thirds or the 3.8% Medicare tax must more than triple.

This has been hidden intentionally from the public debate on entitlements because both Democrats and Republicans know what the figures say, and they also know there are only three choices when it comes to solving this problem:

  • Triple the Medicare tax to approximately 12%, 6% each for employer and employee with no earnings cap.  Incidentally, this is only the forwardcomponent for retirement; you still have medical costs during your working years, insured or not!
  • Dramatically curtail Medicare benefits — by a literal 2/3rds or more.  That’s not going to be popular, but it’s what is inevitably coming if we don’t solve this, because the law does not permit Medicare to go into negative balances, and by the end of the decade it will.

  • Break the medical industry’s monopoly-style pricing and controls.  Up and down the line, from drugs to devices to “CON” laws and more.  In short, make the entire industry from insurance to providers to hospitals to doctors accountable under Sherman, Clayton, Robinson-Patman and first-sale doctrines, along with removing all shields that prevent them from being attacked under Racketeering and similar statutes for any element of price-fixing or other anti-competitive behavior.  This would cause prices to collapse by 75% or more, and suddenly the problem goes away.

#3 is the only way that can work in the long term.  But #3 causes an instant deep recession or worse, as the short-term impact of removing that spending from GDP will be immense.  It also destroys the political power of these companies and groups, such as the AMA and the insurance industry.

What you’re seeing in editorials like the one cited above, along with the so-called “debate” in Washington (and what drove Obamacare) is the inherent scam and fraud in the system as it has been designed and implemented. Whether FDR intended Social Security to be racist and sexist at its inception is not material to the debate, but the factual outcome as it exists today most-certainly is!

Yet nobody — not Democrat, Republican or even the so-called “Libertarian” party, all of which espouse equality under the law for all persons, will take these issues on and bring them to the forefront of public and political discussion.

Instead what we get is the Three-Card Monte game run by columnists in the NYT, along with the political class, seeking to divert us from the facts and figures that are right under our noses.

Discussion (registration required to post)