The Conversation

The hidden gardens of government revenue

The great Walter Williams leaps astride one of my favorite hobby horses, the fundamental dishonesty of hidden government taxation, and takes it for a mighty gallop through the absurd fiction of "employer contributions" to Social Security and Medicare:

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.

I've been having great fun explaining this truth to young people for decades.  I used to work as a software trainer.  One of my jobs was to teach people how to cut payroll checks.  When they discover what really goes into the little-remarked "employer contribution" portion of their paycheck stub, and realize the employee ultimately pays every penny of it, the reaction is a sunrise of understanding rising above the shadowy mountains of New Deal socialism.

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.

I was ruminating on this very point a couple of days ago, when making the point that ObamaCare is but the latest in a long series of Big Government "solutions" to problems Big Government has created.  Among other things, government regulations are the reason we have separate "individual" and "employer" insurance markets.  The much larger population in the latter has grown accustomed to thinking of health insurance as an employer-owned, employer-provided benefit, rather than a product we purchase competitive and control.  We have, in essence, grown accustomed to being paid partially in scrip.  A big chunk of our compensation comes in the form of benefits whose true value is understood by very few employees.

It's amazing to think how much of our income we simple cede to the government without a fight, without every handling the money ourselves.  As Williams explains, half the cost of Social Security and Medicare is entirely hidden from us, because we've been taught to believe in the absurd fiction of mandatory employer "contributions."  The other half comes right out of our paychecks - we never even see it, any more than we see the other automatically withheld taxes. 

On top of that, we pay fabulous sums through pass-through taxes levied on corporations, but actually taken out of our hides.  Likewise, we pay the cost of regulations, which increase the price of many goods and services far beyond what a free market would establish.  And then you could get into the way credit and currency are manipulated to prop up government policy...

When you get right down to it, ObamaCare is really just a gigantic tax increase, one of the biggest ever laid upon the middle class.  Those infamous inflated premiums are a hidden tax, taken from those who are fleeced by the government, and used to furnish benefits to those deemed worthy.  But it's even more dishonest, and inefficient, than the normal sort of tax-and-spend liberalism, because the ObamaCare "losers" are not honestly told they've been taxed to pay for a social program.  They just pay sky-high prices with a fat tax hike folded in.

Also, the regimen of ObamaCare subsidies are a carefully hidden pipeline reaching into our wallets.  ObamaCare apologists like to claim that some of the people who will pay the highest premiums also qualify for plump taxpayer subsidies that will cover much of the cost.  The end result is just another mechanism for looting the people who ultimately pay taxes - and it's just a matter of time before the deficit money pumped into ObamaCare curdles into another strident demand for higher taxes, in the name of "fiscal responsibility."

How much different our political landscape would be, if American citizens were not so routinely played for chumps by the Left, and they could feel the full weight of the grasping hands thrust into their pockets!



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