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Walter Williams
Walter E. Williams
24 Sep 2014
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Do Americans Prefer Deception?

Comment

There's more to the deceit and dishonesty about Social Security and Medicare discussed in my recent columns. Congress tells us that one-half (6.2 percent) of the Social Security tax is paid by employees and that the other half is paid by employers, for a total of 12.4 percent. Similarly, we are told that a Medicare tax of 1.45 percent is levied on employees and that another 1.45 percent is levied on employers. The truth of the matter is that the burden of both taxes is borne by employees. In other words, we pay both the employee and the so-called employer share. You say, "Williams, that's nonsense! Just look at what it says on my pay stub." OK, let's look at it.

Pretend you are my employer and agree to pay me $50,000 a year, out of which you're going to send $3,100 to Washington as my share of Social Security tax (6.2 percent of $50,000), as well as $725 for my share of Medicare (1.45 percent of $50,000), a total of $3,825 for the year. To this you must add your half of Social Security and Medicare taxes, which is also $3,825 for the year. Your cost to hire me is $53,825.

If it costs you $53,825 a year to hire me, how much value must I produce for it to be profitable for you to keep me? Is it our agreed salary of $50,000 or $53,825? If you said $53,825, you'd be absolutely right. Then who pays all of the Social Security and Medicare taxes? If you said that I do, you're right again. The Social Security and Medicare fiction was created because Americans would not be so passive if they knew that the tax they are paying is double what is on their pay stubs — not to mention federal income taxes.

The economics specialty that reveals this is known as the incidence of taxation. The burden of a tax is not necessarily borne by the party upon whom it is levied. The Joint Committee on Taxation held that "both the employee's and employer's share of the payroll tax is borne by the employee." The Congressional Budget Office "assumes — as do most economists — that employers' share of payroll taxes is passed on to employees in the form of lower wages than would otherwise be paid." Health insurance is not an employer gift, either.

It is paid for by employees in the form of lower wages.

Another part of Social Security and Medicare deception is that the taxes are officially called FICA, which stands for Federal Insurance Contributions Act. First, it's not an insurance program. More importantly, the word "contribution" implies something voluntary. Its synonyms are alms, benefaction, beneficence, charity, donation and philanthropy. Which one of those synonyms comes close to describing how Congress gets Social Security and Medicare money from us?

There's more deceit and dishonesty. In 1950, I was 14 years old and applied for a work permit for an after-school job. One of the requirements was to obtain a Social Security card. In bold letters on my Social Security card, which I still possess, are the words "For Social Security Purposes — Not For Identification." That's because earlier Americans feared that their Social Security number would become an identity number. According to the Social Security Administration website, "this legend was removed as part of the design changes for the 18th version of the card, issued beginning in 1972." That statement assumes we're idiots. We're asked to believe that the sole purpose of the removal was for design purposes. Apparently, the fact that our Social Security number had become a major identification tool, to be used in every aspect of our lives, had nothing to do with the SSA's getting rid of the legend saying "For Social Security Purposes — Not For Identification."

I wonder whether political satirist H.L. Mencken was right when he said, "Nobody ever went broke underestimating the intelligence of the American public."

Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

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Comments

6 Comments | Post Comment
Prof. Williams is subtly pointing out some lessons from Economics 101.

1. No business ever ‘pays' taxes. They are merely a collector for taxes that the consumer, or worker, will pay to the government.
2. There is no ‘free lunch'. The cost of that ‘free lunch' will be paid by the consumer, or worker, of the product or services.
3. The government never provides free anything. Anything government provides is borne by the taxes that the citizenry pays, and even that is reduced by the overhead of government. An overhead rate that is probably on the order of 50% (I have no facts to support, just my estimate). One dollar in becomes 50 cents out.

Just think of the Affordable Care Act. The IRS is projected to add 16,000 employees to discharge their responsibility under the ACA. They are not adding a single doctor, nurse, medical practitioner, lab technician, etc. Not even a janitor to keep medical facilities clean. The Office of Personnel Management reported that as of September 2012, the average salary for a full-time, permanent, non-seasonal position was $78,467. Multiply that average salary by the 16,000 ‘collectors' and the total is $1,255,472.000; and that does not include the buildings and/or office space that will be needed for those 16,000. Where do you suppose that "cost" is coming from?
Comment: #1
Posted by: Joseph B.
Wed Nov 20, 2013 3:55 PM
Mr. Williams,
Imagine what would happen if the government suddenly declared that the employer contribution to social security was to be ended. Would everybody suddenly get a 1.45% boost in their income or would the employer consider the excess to be profit? I think that it is equally simplistic to assume that that everybody is paid for their full after tax value as it is to assume that a tax labeled "employer contribution" does not effect your pay check.
Comment: #2
Posted by: Mark
Wed Nov 20, 2013 6:52 PM
Re: Joseph B... Yes, with the observation that labor carries everything, a variation of the labor creates value of materialist economics; Mr. Williams stands with such Communists as Mark, Engles, and Lenin... Good for him...
Most people on the right seem to believe a job is an act of charity, and that miserable wages and working conditions are a means of offering other wise worthless parasites some reason to live...
Thanks...Sweeney
Comment: #3
Posted by: James A, Sweeney
Thu Nov 21, 2013 5:20 AM
Sir;... The remark you quote from H.L. Mencken is unwarranted and untrue...People are inclined to believe others less intelligent because they over rate their own intelligence, but what sets us apart in no positive fashion is our want of knowledge... All people are irrational; using reason primarily to reach unreasonable goals, and we are like all people in this respect... And yet we are not less rational, but simply have less knowledge to feed to reason...
We are as intelligent and inventive, but class war at the level it is fought, in the courts, has taken the money out of invention and problem solving...To know an inventer is to know some one determined to make lawyers rich for no personal benefit what so ever... And yes; many of us do prefer lies to truth when truth, such as it always is: Approximation, requires a determined and unyeilding effort against ignorance... As always; the mark of genius is community contumely, and one must be willing to bear it in the desire to blaze a new trail to a better destination...You simply have to understand our condition as the end result of democracy denied... If I were to consciously allow my neighbor some authority over my affairs and well being; I would naturally want him as educated and refined as was possible...He can be as dumb as a fence post now, and it matters not because he is powerless...
To deny democracy on the basis of lack of education makes certain ignorance will be general, since no one learns without power to demand the truth, and without political power, we find we must trust others with essential intelligence in affairs of great moment in our lives...People who do not know must believe that others are acting in their best interest, much as children believe, and this is seldom the case...We have before us the example of Amazon.com calling the Bible: Fiction... How dare they speak truth, when so many ignorant of reality must rely on the Bible for their understanding of reality...
In fact; belief in the Bible is the trust in human beings of limited knowledge, and uncertain motivation... Do these people want to be lied to??? General ignorance of reality offers people little choice; but no one can presume of others a desire for a situation so contrary to happiness if happiness can be considered as the knowledge and power to act in ones own best interest...
So long as humanity can be kept with a foot on our necks and with faces in the mud; ignorance is the best we can expect, and for us to allow priest, politicians and pundits authority over our affairs because they can know, while we can only sweat, slave and suffer, then our condition will little improve until death settles all debts...
Thanks...Sweeney
Comment: #4
Posted by: James A, Sweeney
Thu Nov 21, 2013 9:35 AM
My pet peeve federal lie is on the 1040 tax form asking money for the Presidential Election Campaign:
.
"Check here if you, or your spouse if filing jointly, want $3 to go to this fund. CHECKING A BOX BELOW WILL NOT CHANGE YOUR TAX OR REFUND."
.
Yeah, the fed has a money tree from which they pluck $3 bills!
Comment: #5
Posted by: cathy jones
Fri Nov 22, 2013 10:19 AM
Ms. Jones,
If only we could limit the moneyy spent on presidential campaigns to tax moneyy. Assume it cost a billion dollars every four years, but that unions, 10%ers, 1%ers, corporations, ect. could not spend squat past their individual personal contribution limit of $2K. What an incredible bargain that would be! The elected president owing nothing to anybody except the voters.
.
The fund you mention has, of course, become a quaint anachronism.
Comment: #6
Posted by: Mark
Sun Nov 24, 2013 10:12 PM
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