https://mises.org/library/forgotten-payroll-tax
Part 1
The Forgotten Payroll Tax
10/16/2003Gregory Bresiger
It's a huge tax that most Americans don't understand. And most of those who support leviathan government want to keep it that way. They're betting on the apathy and ignorance of the average American when this tax is discussed.
So they hope you'll just forget about this burdensome tax, which has been raised dozens of times over the last 40 years, and turn your attention to other things. If one of these leviathan enthusiasts was at your side now, he'd ask if you didn't want to forget about this article and read something else. Maybe turn to the sports pages, he might suggest, invoking a beer and circuses logic.
Still, properly understood, it's hard to forget how much this regressive tax takes from all of us. I'm speaking of the payroll tax, which is used to pay for two very financially questionable social insurance systems, Social Security and Medicare. These are shady systems with trust fund assets that have been pillaged over the years to pay for other government programs, a putrid, robbing Peter to pay Paul practice that, when used in the private sector, usually ends with people sent to the hoosegow for many years.
Yet these social insurance systems have, until the last generation, escaped most public scrutiny, criticism and analysis. Indeed, despite their mismanagement, Social Security is, and has been, incredibly popular with tens of millions of Americans. And this has been going on throughout my life, regardless of who was in power.
As a young man, some 35 years, I remember when I started to pay this tax. When I asked about it, I can hardly ever remember anyone uttering a harsh word about Social Security. There were few critics then. And those hardy souls who said there were problems with the system usually were either ignored or ridiculed in major media outlets, depicted as vicious people who ate babies for breakfast after they threw grandma out into the cold. Other taxes would be sometimes questioned, but not the payroll tax.
Almost everyone understands the destructive powers of the income tax. Indeed, a great libertarian once wrote a brilliant little book linking it to the birth of big government in America.1 In recent years, lobbying groups have formed to reduce or eliminate the estate tax, which destroys small family businesses across our nation, costing thousands of jobs. Many think tanks have correctly preached the virtues of smaller capital gains taxes. Some have even taken these arguments to their logical conclusions and have called for the end of the capital gains tax.
Taxes on savings have led many to question why there is a penalty on thrift. Even that great Bensonhurst busdriver, Ralph Kramden, in an episode of "the Honeymooners" devoted to the nightmares of tax returns, asked, "You have to pay a tax on savings accounts?" Yes, indeed Kramden's $75 bank account was–and still is some 50 years later—subject to a tax. But few have pondered the effect of the payroll tax. It is a tax that has gone from being another nuisance tax to a tax that now takes an enormous part of our income and will likely take much more.
That's because, I believe, there are few people who understand the pricey payroll tax. And there are even fewer Americans who even know what the correct rate is (Hint. It's higher than you probably think it is). The payroll tax rate now is a total of 15.30%. It is split between the worker and the employer. And, given the shaky foundations of the Social Security/Medicare systems, we will likely soon hear, once again, that these systems "must be saved."2