Posted on 08/23/2019 9:38:46 AM PDT by SeekAndFind
With a sturdy job market, healthy consumer balance sheets, and low inflation, the economy is probably not headed toward a recession. But to continue America’s prosperity and guard against a potential economic slowdown caused by the ongoing trade war with China, President Trump should lower one of the most oppressive of all federal taxes — the payroll tax.
The payroll tax is imposed on both employees and employers to fund Social Security, Medicare, and other social-insurance programs. Since 1955, the basic payroll tax has nearly quadrupled from 4 percent to 15.3 percent. Today, almost 70 percent of taxpayers pay more in payroll taxes than they do in federal income taxes. Altogether, the typical worker pays nearly twice as much in payroll taxes as in income taxes.
Despite the much-needed income-tax and corporate-tax cuts from the 2017 Tax Cuts and Jobs Act, the payroll tax continues to impose a heavy economic burden on workers and small businesses. The maximum Social Security payroll tax for a single-earner family is now a whopping $7,960 annually. Moreover, payroll taxes are highly regressive, with the bottom fifth of households paying 6.9 percent on average while the top 1 percent pay 2.3 percent, according to the Tax Policy Center.
It would be a mistake for President Trump to waffle on his administration’s reported consideration of cutting the payroll tax. A reduction would increase take-home pay for millions of workers, shrink the cost of labor for businesses (especially smaller businesses), and provide insurance against a downturn: According to economist Mark Zandi of Moody’s Analytics, every $1 reduction in payroll taxes would increase gross domestic product by 80 cents.
President Trump should propose exactly what President Barack Obama did in 2011: a temporary reduction in the Social Security portion of the payroll tax from 6.2 percent to 4.2 percent. This would provide significant tax relief for the average worker while counteracting the economic toll imposed by the administration’s tariffs on U.S. imports from China, which cost the average American household $600 annually, according to an estimate by JPMorgan Chase.
While a payroll-tax cut would temporarily enlarge the federal budget deficit, the positive impact of such a cut on jobs and growth would likely keep the actual figure below the static revenue cost of $150 billion a year. It would be wise to weigh any temporary increase in the deficit against the more damaging costs of slower economic growth; according to the Office of Management and Budget’s economic rules of thumb, a sustained 1 percent lower real GDP growth would increase the budget deficit by $800 billion over ten years
Regarding potential concerns about the impact on the Social Security Trust Fund, such a temporary reduction is unlikely to have significant lasting impact. Any immediate small blow to the fund would be mitigated by the long-term protection against recession provided by the tax cuts. Ultimately, forward-thinking reforms to the Social Security program would allow Americans to invest a portion of their payroll taxes into personal retirement accounts. Instead of letting the temporary payroll-tax cut go back to the government when it expires, the money should be redirected into personal retirement accounts, as suggested by the Institute for Policy Innovation. This proposal would produce higher returns for future retirees and put the Social Security program’s long-term finances on sounder footing by offsetting most of the program’s future liabilities for today’s workers.
A payroll tax cut should not be a partisan issue. In 1990, my then-boss Senator Robert W. Kasten Jr. (R., Wis.) teamed up with Senator Daniel Patrick Moynihan (D., N.Y.) on payroll-tax-cut legislation that garnered the support of the National Federation of Independent Businesses and the AFL-CIO. Though he has typically been reluctant to follow his predecessor, President Trump has the opportunity to improve on President Obama’s 2011 effort with a cut of his own.
We do not need to wait for wholesale reform to allow Americans to keep more of their hard-earned money, which would boost the economy, increase take-home pay, and create jobs. Cutting the payroll tax is a smart hedge against any future economic distress and a powerful tool for extending our already unprecedented economic prosperity into the future.
Get rid of it completely and start over with the 36 and under millennials.
Is this the FICA deduction that I see on every paycheck?
Today is payday. FICA deduction is 5.7% of my earnings.
And do what with the 62 and older Baby Boomers?
> FICA deduction is 5.7% of my earnings.
About double that, actually, because your employer has to match it.
Let us rot! Never mind how much we’ve paid in! It’s a Ponzi!
RE: Is this the FICA deduction that I see on every paycheck?
Yes it is. The Federal Insurance Contributions Act (FICA) AKA Payroll tax, is the federal law requiring employers to withhold three separate taxes from the wages they pay their employees.
FICA is comprised of the following taxes:
1) 6.2 percent Social Security tax;
2) 1.45 percent Medicare tax (the “regular” Medicare tax); and;
3) Since 2013, a 0.9 percent Medicare surtax when the employee earns over $200,000.
62 and older baby boomers. Take it out of the general fund. Well-to-do get no more than they put in + that one or 2% interest. It will take 50 years for the last of the 37 year-olds to die. Aged 37 to 62? I say pay them off somehow.
I would scale it. Younger workers pay a higher rate and it scales downward based on years paid in. I would also do this with municipal employees.
No. Don’t add to the deficit and debt.
Social Security is unconstitutional. End it. Stop taking the taxes, stop sending the checks. If Congress wants to do something to ease the pain — and can do it within constitutional limits — that’s fine. Just don’t raise my taxes to do it.
Wow, espousing 20th Century conservatism in the Age of Trump? Off to the reeducation camp you go! (sarcasm)
Because you may not know. The payroll tax is Social Security and Medicare. Its not a tax at all. Payroll tax is just 1984 style double speak for two underfunded insurance schemes run by the federal government. There is no reason to change the funding of these two schemes. Everyone pays in. The question is why do people get to take out more than they put in. Well if you live to 90, ok. But there are lots of people who take out more before they even turn 75.
Social Security is going to be ok. It will go red when the baby boomers hit maximum retirement in 15 years. But it quickly goes back into the black. And it could be improved right now by increasing the retirement age by one year.
Medicare is the issue. Its the only issue. We need to lower costs. We need to reduce expenditures until medicare becomes close to solvent.
I completely agree with your point about why people get more than they contribute. That said, not everybody pays in. My MIL never worked a day in her life. She drew survivor benefits of $1500 a month from my FIL's SSN after he passed. She lived another 16 years after he passed. $288K for just one person who didn't contribute a dime, and I know for a fact that amount's WAY beyond what my FIL contributed. There are millions of others in similar situations.
Regardless of these record intakes, Congress always manages to outspend whatever is taken in, usually by an obscene amount. This, then, requires Congress to raise the debt ceiling in order to pay for its profligate spending.
And still, the Democrat politicians cry for more taxes to cure this yearly imbalance.
Since the Congress habitually raises the debt ceiling, regardless of the amount of revenue acquired or taxes collected, why do we have to pay taxes at all? With no income tax, the government will roll along just fine, increasing the debt as fast or slowly as it pleases - without all the absurd posturing as to who has to pony up their 'fair share.'
NO!!! Make “everyone” who earns even a single $ pay at least 10% so that everyone shares in the pain!!!
Agree, get rid of it completely or leave it alone and do a targeted tax cut towards the middle class. Obama’s payroll tax cut was a Byzantium disaster.
Wow, thinking 20th century “conservatives” gave a damn about debt and deficits.
RE: NO!!! Make “everyone” who earns even a single $ pay at least 10% so that everyone shares in the pain!!!
Herman Cain wanted 9% ( remember his 9-9-9 plan? )
Cutting taxes is good, but cutting SPENDING is CRUCIAL!!!!
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