About 18 months ago in this column, as federal budget surpluses began to swell, I suggested that Congress reduce social security taxes. It seemed like a good idea then (that was the source of the surplus at that time), and it still seems like a good idea.
Everyone agrees that the federal government is now taking in more money in taxes than it currently has the authority to spend. And everyone seems to agree where much of the extra money is coming from -- Social Security taxes.
That’s why I’m glad to see that, finally, people are talking about reducing the Social Security tax rates. Let me reiterate why.
First of all, it meets the fairness criteria. It’s a tax that everyone who works (and their employers) must pay, and it’s one that we all pay at the same rate on the first $72,000 of our income. For much of the U.S. population, FICA takes a bigger bite than does the federal income tax. Everyone will be able to share in this tax cut.
Secondly, it’s socially responsible. I disagree philosophically with exempting large portions of the population from paying any income tax, which traditional tax cut plans tend to want to do. Paying taxes is a responsibility of citizenship, much like military service, and we as a society run a grave risk in the future by totally exempting a significant portion of the population from paying federal income taxes.
By all means, cut income taxes at the upper end of the scale but, as you reach the lower income levels, it’s better to reduce taxes that people are actually paying.
Thirdly, it’s appropriately targeted. If the federal government is taking in more money for Social Security than it needs, and if it has no intention of investing that surplus revenue in a separate fund to be used only for the purposes for which the money was collected (e.g., Social Security), then the government ought not to be collecting that much money. It’s like taking money under false pretenses to collect money separately for Social Security, and then spending it on defense or transportation, or whatever.
Finally, and perhaps most importantly, it’s a tax on employment. Not only do employees pay over 6 percent of their salaries to this “fund,” so do their employers. And if you’re one of this country’s growing number of self-employed, you get to pay both sides -- employer and employee -- of this tax.
Social Security taxes do add to the cost of employment, and they do have an impact on the number of people a company can afford to hire. It may not be a big issue now, but sooner or later, unemployment rates will go up and, chances are, when they do the economy will conversely be going down.
Let me reiterate -- this is not an argument against Social Security. I believe in Social Security, and I certainly don’t begrudge my parents’ generation -- folks who were brought up during the Great Depression and then thrust into World War II, the generation that made this country the great nation it is -- whatever level of peace and serenity the Social Security program brings them.
No, this is about rational tax policy and ending the shell game begun more than 30 years ago. Why should the federal government place this added financial burden on the employee and the employer, if it doesn’t intend to use the money for the purpose for which it was collected?
I’m glad to see that this issue is finally beginning to gain some traction.
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