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Moratorium could forever alter unfair tax

WASHINGTON — Sen. Pete Domenici, R-N.M., chairman of the Senate Finance Committee, has recommended an immediate three-month moratorium on payroll taxes. This news is big, and it will impact all of us well beyond three months. Why? First some facts, then the answer.

Payroll taxes (Social Security and Medicare) are the largest taxes paid by most Americans. The bite is 15.3 percent, and it comes out of everyone's paycheck up to the first $80,400 of income. In 1937, when the Social Security tax was first assessed, it amounted to a mere 2 percent of the first $3,000 of income.

But before we get tangled in statistics, let it suffice to say that this onerous, anti-progressive tax dramatically affects those citizens who can least afford to pay it. And do not kid yourself: The idea that your employer pays half the tax is hogwash. Anything — we repeat, anything — that your employer pays on your behalf, whether it is taxes, health insurance or any other benefit, is regarded by the employer as part of your compensation. The employer cannot view it any other way. An employee costs the employer X number of dollars. Period. In fact, the employer would much prefer to simply pay the full amount to the employee and let the employee pay his or her own taxes, Social Security, Medicare, health insurance, dental insurance, etc.

The fact is that you are paying 15.3 percent of your gross income in taxes. This contrasts with income taxes, which are paid on net income, which is calculated by subtracting exemptions, credits, expenses or the standard deduction from your gross income.

Now for the answer to our question about why the three-month moratorium is such big news. Taxpayers earning $3,500 per month, for example, will see an immediate $267.75 increase in their paychecks. Further, they will be fully justified in asking their employers to match that amount, bringing the total to $535.50 a month — a significant sum. And once they are used to receiving it, they will not easily be convinced to go back to the way it was.

Overnight, the American tax structure will irrevocably have been altered. Suddenly, the idea of funding Social Security and Medicare out of general revenues — instead of targeted, dedicated taxes on low-income earners — will take hold. Suddenly, the $1.6 trillion tax cut will have been applied where it should have been applied in the first place: on relieving lower-income earners of the unfair burden of paying for the bulk of the previous generation's Social Security benefits. That's correct: You are not paying for your retirement. You are paying for the previous generation's retirement, because the Social Security tax is an intergenerational transfer tax. The government is transferring it from you to retirees.

That is why the moratorium is so important. Lower-income Americans will finally discover how much they are really paying, and they will not want to pay it any longer. A demand to make the moratorium permanent will emerge, and Congress will likely pay attention. Our senators and representatives will be compelled to end the most unfair, nonprogressive aspect of the tax code.


United Feature Syndicate