I am recommending the elimination of the payroll tax. The payroll tax is a regressive tax that falls harshly on the poor. And it is deceptive, an unacceptable characteristic of a tax in a democracy.
Half of the payroll tax appears to be paid by employers. In fact, studies of the payroll tax show that the employer merely lowers worker compensation in response to the tax burden. So workers pay virtually the entire 15%.
Worse, the payroll tax gives the illusion that taxes are "contributions" toward future social security payments. In fact, the payroll tax is used to finance current recipients of Social Security and Medicare along with other government spending such as the war on Iraq and welfare for wealth farmers.
This fools workers into thinking such programs are cheaper than they actually are. This artificially encourages the demand for such programs.
Unlike a temporary rebate of payroll taxes, eliminating the payroll tax will change incentives facing firms and workers. The result will be job creation and increased worker compensation. The permanence of the change raises the effectiveness of that encouragement, again in contrast to a temporary rebate.
But eliminating the payroll tax without reforming the budget and entitlement programs would be irresponsible and would rob the tax cut of much of its kick.The payroll tax currently generates about $700 billion. We will pay for that reduction with three other changes:
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Social Security and Medicare are not viable in their current form given our demographics. For 70 years we have pretended that they are insurance programs. In fact, they are welfare programs that also help the rich in the name of generating support for the system. It is absurd for wealthy Americans to be part of a retirement and health system when they have the wherewithal to take care of themselves without government help.
The system isn't financially bankrupt--yet. But it is intellectually bankrupt. Why should today's workers pay for today's retirees in the expectation that future workers will do the same for them? Why should a poor worker of today send money to a wealthy retiree? There is a name for such schemes and it is not a pretty one. It would be far better to let those who are capable of taking care of themselves do so, while putting aside money for those unable to take care of themselves.
In short, I propose that Social Security and Medicare become means-tested safety nets for the truly needy, rather than a fake pension and insurance program with a hidden welfare component. The commission I appoint will design a gradual transition over time to such a transparent system, allowing today's workers to plan honestly for the future.
One method of transforming Social Security and Medicare will be to make them means-tested and make the welfare components explicit rather than buried and opaque as they are now.
Ultimately, this will allow for lower tax rates. Those expected lower tax rates will help encourage current spending because consumers will not have to worry about future tax increases.
I think that I hate hate Social Security so much because when I think about the system I feel like the politicians think that they are scamming me. I picture them laughing at us voters. In a lot of ways SS less bad than many programs because it is mostly a transfer from Peter to Peter but it aggravates me because it makes me think that they think I am stupid.
Also it is a very expensive scam. You can only tax people so much or they will hide their income and so you cannot think that SS is because the FICA tax covers it. It should be reformed.
