Skip to comments.An idea for tax reform: Abolish the payroll tax
Posted on 12/26/2012 7:22:00 PM PST by SeekAndFind
If Republicans and Democrats are serious about tax reform in 2013, they should throw away the tired old playbook and consider bolder ideas to fundamentally change the flawed tax code. One such idea would be to eliminate the payroll tax.
The payroll tax -- 12.4 percent, split between workers and their employers to help finance Social Security -- is one of the worst taxes on the books for several reasons. A basic economic principle is that when the government taxes something, the nation gets less of it. Because the payroll tax makes it more expensive and administratively burdensome for businesses to hire workers, it's a drag on employment. Also, even the employer's share of the tax is effectively passed on to workers in the form of lower salaries and benefits. In addition, because the tax is capped at $110,000, it disproportionately reduces the take-home pay of lower- and middle-class Americans.
Scrapping the payroll tax could be the basis of a larger compromise on taxes. During the presidential campaign, Mitt Romney proposed a tax reform plan that would get rid of deductions and loopholes while lowering rates. The Obama administration, citing a Tax Policy Center analysis, argued that such a plan would be regressive, because deductions, loopholes and credits in the current tax code disproportionately favor lower income groups. But removing the burden of payroll taxes from middle-class and lower-income Americans would be such a progressive step that it would create more space to simplify the tax code.
There are two main objections to scrapping the payroll tax. The first is the theoretical idea that payroll taxes are a dedicated revenue stream for Social Security. In practice, it just isn't true. All government expenditures ultimately come from the same place. Payroll taxes help subsidize other government functions, and the government will use other tax revenue and borrowing to pay for Social Security when revenues are short.
The other objection is the massive revenue hit to the federal government. In 2010 (the last year before the recent payroll tax holiday), social insurance taxes raised $865 billion in revenue, according to the Congressional Budget Office. But there are a number of ways to recoup that revenue. As stated above, eliminating the payroll tax would make it easier to get rid of a lot of credits, loopholes and deductions. Also, if lower-income Americans aren't paying payroll taxes, they can pay a bit more in income taxes. This would also deal with a conservative complaint that the income tax system needs to be reformed so everybody has at least some skin in the game. Furthermore, if businesses react as expected to the tax changes by raising salaries and hiring more workers, it would expand the tax base.
Obviously, this is a very theoretical, bare-bones proposal that would require a lot more quantitative analysis. But if properly fleshed out, it could be a bold way to create a simpler tax code that maintains progressivity and encourages employment.
Republicans and Democrats love the tax code just the way it is. It allows them to pit us against one and other so they can maintain a voting “base”. F both parties.
DEFUND socialist collectives, foreign and domestic, FOREVER. There will be a surplus. Taxes will come down dramatically.
It matters not how they diddle and fudge with the tax code. If they don’t cut spending immediately and drastically, fiscal disaster is inevitable.
I understand the argument for this but wouldn’t that just turn SS into just another welfare program, I mean officially.
Or is that the idea?
Well-stated, Michael Barnes. They're all socialists now. Watch them tax...and spend...and tax...and spend...and tax...etc., etc.
Keep paying, our Social Security checks depend on it!!!!
In any ponzi scheme it pays to get in early!!!
As part of the deal we slowly phase out SS. The people on it stay on it and the people just about to retire. For people like me (age 50) they should provide a Roth where I can convert my IRAs without penalty and give up my claim on SS. Or provide a better IRA deal in place of SS without mandatory withdrawal, whichever people prefer. There will always be people with no retirement savings who will have to fall back on SS, but we need to incentivize people to save and keep those savings for future generations. The feds basically want everybody to spend now and damn the future.
Social security is and always has been a welfare program.
>> In any ponzi scheme it pays to get in early!!!
At least you’re honest.
......................There will always be people with no retirement savings who will have to fall back on SS, but we need to incentivize people to save and keep those savings for future generations. ....................
Yeah, like that’s going to happen.
Social Security has been around for what, 70 years, and the average couple entering retirement has what $30,000 in assets to their name for the next 25 years in retiremant.
Kill Social Security, and then contemplate who is going to have to provide for the growing number of folks that have spent all they have earned during employment, as they enter retirement???
There just ain’t enough money in the country to care for everyone 100% for the next 25 or so years.
Welcome to Communism!
This is the only tax a lot of Democrats pay
I have lived outside the US since 1991
I have paid almost nothing into the SS system. As a result I refuse to go back to the US and pay into it. I will be able to retire soon. I don’t need the SS and I refuse to pay anything more into the system.
eliminate the payroll tax....ABSOLUTELY NOT!!!
the people have to realize that NOTHING is free. The payroll tax is your social security and I don’t want to pay for yours. There should also be a federal sales tax so that everyone is involved in paying for this fiasco that people voted for.If you are in favor of higher taxes on millionaires (I’m not) then pay higher taxes yourself. We cannot continue to borrow money from the Chinese, nor anyone else, to finance our day to day expenses. To borrow money to give away in the form of foreign aid is insane. Enough is enough...Obama wants to make it fair....either a flat tax or a sales tax but get rid of taxing income...it makes no sense whatsoever.
Nobody pays into the SS system, all that money is going into the general fund
Why stop there? Abolish the estate tax, property tax, capital gains tax and tax on dividends and interest.
An idea for tax reform - stop spending so much
Hellooooooooooooooooo...the payroll tax I paid for 40 years is what funds Social Security checks to gizzers. Now that I am an old gizzer, you want to stop funding it? Please go away!
The author is HALF right, but does not take the logic to its just conclusion.
Repeal ALL income taxes and go to the consumption tax, the FAIR TAX and be rid of the failures of Keynesian economics once and for all.
Almost 10 trillion dollars is being spent by corporations OUTSIDE the US Tax system, end it all and those dollars come home the next day!!!!