Do Americans Prefer Deception?

social-security-taxesThere’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?

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.”

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  • Micha_Elyi

    In bold letters on my Social Security card, which I still possess, are
    the words “For Social Security Purposes — Not For Identification.”
    –Walter Williams, truth teller

    I have one of those SS cards too. I warn bank tellers that they might risk a visit from the FBI by demanding my SS number. Heh heh.

    More seriously, I’ve long wondered why employers don’t put the entire burdened cost of their employee on the top line of the pay stub and break out all the cost items for the employer that are usually hidden, such as the so-called employer’s share of FICA (Federal income confiscation act?), unemployment insurance taxes, disability insurance, employer’s payments for so-called health insurance, etc. then give the usual employee income figure used by the IRS with all of the usual deductions from that. This might be eye opening. Why don’t employers do this, are they really that stupid as to go along with the government’s fictions? If so, then they partly deserve all those taxes and costly regulatory mandates; they’ve brought it upon themselves.

    • ebonystone

      “Why don’t employers do this… ?”

      Probably because then one would owe income taxes on it — both state (in most states) and federal, raising the cost of employment even more.

      At my place of employment, we have a 401-k plan which allows us to put in up to 15% of our regular pay and up to 100% of any bonus payments. A few years ago, we received a $1000 bonus for renewing the contact. One of my co-workers was one who put 100% of any bonuses into his 401-k, and he showed me his pay-stub. Payments into a 401-k owe no federal or state income taxes, BUT they do owe SS taxes. So $76.50 was withheld for that. And THEN, since that $76.50 did NOT go into the 401-k, it was taxable, by both the state and the feds. So, only something a bit less than $900 actually went into the 401-k

  • Sheik Yerbouti

    The Americans who actually DO work are learning fast. They see the cynical side unfolding. Employers only want to make a buck on your hide and “loyalty” to the hired help vanished long ago. Of the firms who still emulate this tradition, most will do their best to shove you out with nary a goodbye at 19 years and 11 months to avoid contributing to your pension (often with trumped up claims of poor performance).

    Only the self-employed can avoid this trap. But they too have all sorts of holes they can step in that are provided by the safety net we call the US government. But I still respect these smaller entrepreneurs far more than I do people who think their employer “owes” them anything at all. They sure don’t see it that way. And the government is more than happy to help corporate greed-mongers by creating smokescreens like this.

    Without the smoke and mirrors MOST working Americans might rebel. As long as they can be fooled, the status quo remains firmly in the hands of the upper crust. For the rest, the non-working Americans, there’s the usual bread and circuses “programs” to keep them fat, though not always occupied.

    We’re relying upon a house of cards for our future.

  • Sassy Serf

    It’s tough being pro-capitalism and anti-crony capitalism. We are surrounded by hordes of bandits pretending to be Robin Hood. But the nature of man means it’s our own fault as much as it is the fault of the rapers and pillagers. Some gunslinger is going to come along and offer to clean up our town one of these days and we may find ourselves in an even worse fix.
    Support the Convention of States!

  • Donald J DaCosta

    It’s distressing! On the one hand the commentators and pundits on the TV and radio are incessantly proclaiming their firm conviction that “the American people are not stupid.” On the other there are the incessant, absurd advertisements on the same TV and radio shows making what sound like thoroughly implausible comments, promises and offers designed by professional marketeers working hand in hand with psychological consultants to maximize the sales potential, get the biggest bang for the very expensive dollars spent per air time second, by accurately assessing the intelligence of the target audience. Buy one get two “free,” “free,” just pay shipping and handling, use this card and get 1% back on every purchase, the more you spend the more you get back, and etc., etc.,
    always accompanied by the intentionally obscure fine print flashed inconspicuously at the bottom of the screen or read, in a drab monotone, in as fast as humanly possible speech at the end of the colorful, dynamic, dramatic, mini sales drama.

    Are these ads designed to maximize sales by appealing to a minority or a majority of the viewing public? And, if a majority, as if that is even in question, what level of sophistication and intelligence are they aimed at?

    And then there’s the re-election of Barack Obama. Was that the intelligence of the majority of the American people at work?

    The average American may not be stupid but the majority are ignorant, superficial, undiscriminating and not at all concerned about what is happening in America, or the world, of any import except when it has a direct and unpleasant impact on their immediate lives. Then, being essentially clueless, they’re easily manipulated by lies, half truths, false allegations and assignments of blame which immediately and unquestioningly become sacrosanct; common irrefutable fact no matter how illogical.

    Just ask the highly successful advertising execs whose livelihoods depend on an accurate assessment of the mindset and attitude of their target audience; all those Americans who are well informed, educated, alert, discriminating and not easily misled by promises that are so obviously misleading? Not likely! And lest it’s forgotten, many of their target audience vote.

    • Sassy Serf

      It’s just amazing, isn’t it?

    • A Z

      … & Devastating.

      Walter’s analysis was devastating.

      • Donald J DaCosta

        True. Unfortunately I suspect few are paying attention or even know who this man is.

        • A Z

          I am nominating Walter for a Nobel prize in physics.

          He invented invisibility before profession physicists.

  • Berferd

    I’ve always thought it would be best for employers to raise the employees salary by the level of cost of federal taxes and insurance and then the employee would be responsible for payment of both. The pain would be exclusively felt at the individual level and therefore, understood. In addition, the wartime imposition of automatic withholding should be ended and monthly billing by states and feds instituted making it even more apparent to each worker as to the amount of money going into the behemouth.