Thursday, July 12, 2012

National Review Magazine “Don't Forget Payroll Taxes”

Chicago Thursday 21 June 2012

Editors, National Review Magazine


National Review Magazine [Monday 25 June] has two letters (“Don't Forget Payroll Taxes”) from individuals who sure know lot about federal taxes.

The 2012 Statistical Abstract of the United States shows that in 2010 38.4% of all taxes received by the federal government were withheld by employers from wage earners' wages as individual income taxes. Another 34.7% from the same source labeled “Old age and disablity Insurance” (Social Security.)

So 73% of all taxes collected by the feds in 2010 came from Employer checking accounts. If it didn't, the employer would go to jail. Employers work under the same constraints as the rest of us, so way back in 1937 they covered this expense by taking a little nick out of wages they paid to workers. But after that first nick, wage earners never felt a thing. But the employers still have to write those monthly checks, so they cover it by adding the expense to the cost of their product. Presto! 73% of all federal income comes from a silent, painless, national sales tax.

There is no “Medicare trust fund” nor a “Social Security trust fund” either, and never has been. The payroll taxes that allegedly go into these funds go into the general fund. That's the fund where all the $trillions
the federal government spends comes from, too, but by that time there
is no label on a single dollar saying: “this money came from Social Security contributions...” In 56 of the last 60 years this has forced us to borrow to cover an annual deficit.  This has been easy for the world's largest economy, but gets less easy all the time. After 8 years of the Bush administration's average monthly $20 billion deficits, followed by 42 months of the Obama administrations $120 billion average monthly deficits, time is running out on reality.

An added twist: The ninety per cent of voters who are wage earners have drawers full of pay stubs saying: “You earned, and your employer paid...” implying if the employer hadn't paid the feds, they would have given the money to the wage earner. So all those voters say: “Hey, I
paid in – I deserve Social Security, and medicare!”

The federal government can do nothing to help citizens growing older. But there is a private sector, that includes insurance companies. They hire actuaries who design plans, such that if an individual contributes a fixed amount over their working years, the company will pay them a living wage until they die. What do they do with all these contributions? They invest them, in private and public projects, that return enough interest to support the obligations. Are they reliable? How reliable are John Hancock Insurance, Massachusetts Mutual Insurance, Northwestern Mutual, Metropolitan Life compared to the federal government?

This mess can be fixed. Get a majority of the House of reps, 60 Senators, and a President with backbone enough to change the US Tax code from "every employer making payment of wages shall deduct and withhold upon such wages a tax..." to "every employer making payment of wages shall pay all of them to the employee...." The employer would still calculate the tax, noting to the employee: "Here is what the feds expect you to remit in 30 days"

Returning the responsibility of writing checks to fund the government to voters would force them to face how much all these entitlements cost, encouraging voting for legislators less likely to support federal vote-buying giveaways.

Arnold H Nelson

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