The most direct way to expand payrolls is to cut the payroll tax
There will be a debate tonight (Monday the 30th) from 7-830pm at the main Towson library on York RD. I intend to focus as much as possible on arguing that if your main goal is to expand payrolls, then cutting the payroll tax is the best, most direct tax to cut. It is not to cut the top corporate rate, top marginal rate, estate tax, capital gains tax, or dividends tax. You cut the later if your goal is to create a society modeled after pre-revolutionary France where the top 3% paid no taxes, and everyone else paid it all.
For years proponents of trickle down economics have tried to trick the masses that a tax cut for someone else is better for them than a tax cut for themselves. Of tax cuts for the rich will help the masses compared with no tax cuts at all. But to compare tax cuts for the rich with tax cuts for the masses and then ask which scenario is better off for the masses, the answer is obvious. It’s like if you and I are in a closed economy and someone else comes along and gives $100 to me. Of course that’s going to be better for you relative to the $100 never coming along, but it’s certainly not better than had the $100 been handed to you. If trickle down proponents want to argue based on fairness, based on the fact that the top 5% pays 36% of all the income taxes, fine. But don’t try to argue that it’s in my best interests to pass a tax cut onto you.
Speaking of fairness, the top 1% pays the same total tax rate as the bottom 50% when accounting for the payroll tax, about 28%. If you make over $402k/year, you’re in the top 1% and you pay an average federal income tax rate of 21.8%. In addition you pay Medicare tax of 2.9% and Social Security tax of 3.3% (because only the first $106,500 of your income was taxed) bringing the total to 28%. If you make less than $30,588/year, you’re in the bottom 50% and pay an average federal income tax rate of 12.8%. But you also pay Medicare tax of 2.9% and Social Security tax of 12.4% bringing your total to 28.1%.
My plan would exempt the first 100 employees from complying with the payroll tax at all. 95% of all businesses in this country would be completely exempted from the biggest regulatory burden most face, and have their payroll costs reduced by 7.65%. With this savings they could hire, reinvest/grow, or pay their employees more who would then in turn circulate it through the economy. In any case, payrolls and the economy expand. 40% of the US labor force would get a 7.65% raise in their take home pay. This would also increase the amount of money circulating through the private sector, real economy. Additionally, I would close the $106k Social Security earnings cap thereby subjecting all income to the SS tax, just like Medicare is. This would bring in enough extra revenue to lower the rate for everyone from 7.65% to about 3.65%. If you think the math through, you’ll see that this would result in a tax cut for every individual earning under about $188k/year.
One of the many causes of the Great Depression was the fact that the average worker couldn’t afford to purchase his own production. The economic collapse we have faced the last few years was also caused by this, only unsustainable credit bridged the gap for awhile. We must abandon dogmas, and apply common sense and facts if we are to find the path to prosperity.
