Tuesday, February 3, 2009

Are Payroll Taxes Income Taxes?

I got a phone call this morning from one of my readers taking issue with my statement on the video (and elsewhere) in which I decry the number of American workers who pay no income tax.

The caller stated that "social security is an income tax." His point was that those who pay payroll taxes but no income tax do not make the distinction, and being a bit of a conspiracy theorist, he believed it all went into the general fund anyway. That such people do not make the distinction is immaterial; it should be made FOR them.

Payroll taxes (such as social security) go into specified accounts, not the general treasury. In the case of social security, it goes into the Social Security Trust Fund. When people talk about social security going broke, about fewer people paying in than taking out...they are talking about it this way because it is a fenced off account. While the Federal government has on occasion, dipped into the Social Security Trust Fund, it is not routine and it is done with great trepidation.

So, paying into this fund means that someone is lending the government money to draw interest on and accumulate, so that when their retirement time comes, they can draw upon the fund to help meet their financial obligations. Depending on income levels, most people take out of the system what they put in in less than 7 years of retirement. With people living longer and longer, there is an increasing number of Americans who take out far more than they've paid in, even accounting for interest.

But remember, the money paid in is not going for: national defense, building roads, honey bee insurance, early childhood education, or the National Hurricane Center. It is only going to a fund that will eventually push the money back at the contributor.

When I speak of people paying no income tax, I am speaking of those who pay nothing toward the responsibilities of citizenship. That means, the workings of government, some of which are specified above. So while these folks are indeed contributing to a fund from which they will eventually greatly benefit, they are not paying a dime toward the maintenance of this Republic. This is why the distinction MUST be made. From a simple question of responsibility, ALL Americans should pay SOMETHING toward the operations and maintenance of the greatest Republic on Earth.

Here's a proposal.....I'd support raising the income level against which payroll taxes are levied.....if liberals would support the notion that EVERY worker must pay a minimum of 3% of their income into the federal treasury.


Anonymous said...

If social security was funded by a tax based on my purchases from Macy's and Kroger, I'd call it a "sales tax". But it is levied against my income, thus please allow me to call it an "income tax" while I contribute to a Ponzi based welfare program.

Mudge said...

This is very interesting to me. I have never, even for a moment, considered FICA an income tax. I always think of State and Federal Income Tax Withholding taxes as my only "income tax". I see now why so many people whom I have accused of not paying any income tax, now claim that they do. Thanks for straightening me out. I also see why they feel they are owed a tax "rebate" when such language is mis-used on the Hill. Never mind that they are wrong in their beliefs, but it does explain the source of their mistaken reasoning.

Anonymous said...

Dump all payroll taxes at the federal level! Go back to have the UNITED states fund the FEDERAL government; instead of the other way around that has developed over the past few generations. Why does the Federal Government support the INDIVIDUAL states now anyway?

PROVIDE for the COMMON defense; PROMOTE (not provide) the GENERAL welfare; nad INSURE the blessings of LIBERTY. (Can someone please look up the definition of 'Liberty' from the context of the late 17th century?)

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