Sunday, August 23, 2009

Medicare and Social Security = Wrong and Wronger

Both the left and the right should agree to do something about these hideous programs and here's why:

These are regressive taxes - Every working American (and non-American) pays social security and medicare taxes regardless of how small there income is. Currently, you pay 6.20% on the first $106,800 of income for social security. You also pay 1.45% on every dollar of income with no cap. Not only do you pay this amount, but your employer matches these contributions. This makes the effective tax paid 15.30% on the first $106,800 and 2.90% on every dollar after that. It doesn't matter whether you make $1,000, $10,000 or even $100,000 per year, you pay exactly the same rate. Isn't our tax system supposed to be progressive? These taxes certainly are not and should be opposed on that ground alone.

There is no income cap on receiving benefits - One justification for redistribution of wealth is to help the less fortunate. This at least has some moral ground to stand on. It is incomprehensible to redistribute wealth from those that do not have it to those that have it. This Robin Hood in reverse craziness is exactly the case in Social Security and Medicare. It doesn't matter if you make tens of millions of dollars, you receive social security like everyone else. This rich person is receiving taxes paid by someone far less fortunate. This is absurd and immoral.

These are hidden taxes - There's only one reason you only see what you pay into social security on your paycheck: to trick you into thinking you are paying less in taxes. The reality is that YOU, not your employer, pay the full tax. The vast majority of us (those with incomes less than $106,800) pay an outrageously high 15.30% of our income into these redistribution taxes. Why doesn't your employer actually pay this tax? Let's think about it. You own a company and need to hire someone, the only thing that matters is the employee's total cost. That cost consists of their wage and taxes. The fact that an employer hires you means that your compensation must be worth both the wage and taxes. The employer is completely indifferent as to how that compensation is distributed. He pays $100/hour for your labor. It doesn't matter if you receive the entire $100 or you receive $70 and the government receives $30, the cost to him is the same. Make no mistake, you bear the full cost of taxes paid by the employer on your behalf.

First, if we are to use the power of government to help out the less fortunate then let's do so. Social Security and Medicare both fail on this account and should be modified to align them with our basic sense of morality. Second, it's bad public policy to implement hidden taxes. This hides the true cost of government and distorts incentives. Government services cost money and we should make those costs transparent so everyone can make informed decisions. Our current system is designed specifically to hide those costs. This is immoral.


Post a Comment