Diary

Doubling Your Taxes: The Republican Path to Victory

I hope that got your attention.  🙂

I was exchanging email with an acquaintance the other day, a senior Senate staffer for the “Evil Party”—I was bemoaning the destruction of what was left of the Constitutional republic by Obamacare and castigating her for her (very indirect) complicity in it. Her snarky response, sadly, had the flavor of truth. She noted that both Medicare and Social Security had been extremely controversial when passed but were now almost politically untouchable. Though I disputed this in the long-term sending her back an equally snarky email noting that perhaps they would not be so popular when the full bill for these programs came due, on a practical level, it was hard to argue with her contention.

This got me thinking about something I have wondered about for some time—perhaps these programs wouldn’t be so popular if people knew how much they were paying for them today. As most Red State readers (but probably not so many in the general public) know, ½ of our Social Security and Medicare Taxes are technically “paid” by our employers.

Of course anyone who understands economics knows that in fact, it is the employees who bear almost all of the burden of the employer tax (Note to any actual economists reading this: I am aware the technical academic literature on this is complex, but this simplification is good enough for didactic purposes). In other words, again, to simplify a bit, the employer has a line item in his budget for wages. If he has to pay a Social Security and Medicare taxes worth 7.6% of his employee wages, he budgets that in for Uncle Sam and that is 7.6% less that he will pay to his employee. If he didn’t have to pay that amount, he would be able to pay his employee 7.6% more money. What economists call the tax incidence of Social Security and Medicare taxes falls almost entirely on the employee, even if it is technically the employer who pays the tax.

The political meaning of this should be obvious. If people realized that they were effectively paying twice as much for Social Security and Medicare as they think they are, these programs would be a lot less popular—and my Democratic acquaintance would be a lot less smug.  (I’m not even going to get into the Multi-trillion dollar deficits these programs are running) One could imagine several ways of doing this legislatively—everything from altering W-2 reporting to more radical and complext bills that would actually change who paid those taxes (while not, of course, actually increasing the tax burden on anyone)

And so my modest proposal for Republicans who care about entitlement reform: Lets double everyone’s payroll taxes—or rather, to put it in a less provocative way, let’s make sure that voters see that they are already paying 2X the payroll taxes they think they are paying.

If we want to have any hopes of reining in these runaway spending freight trains, the first thing we should do is make sure that taxpayers understand how much their tickets really cost.