Wish Mitt Romney and Paul Ryan would tell us why we need a payroll tax

An article in The New York Times.com today described the possibility that the reduction in payroll taxes negotiated in 2010 may not survive past 1 January 2013.  Specifically the employee tax of 4.2% may go back to the original rate of 6.2% in January.

Those of us who earn wages recognize this tax on our pay stubs.  It is noted as FICA (Federal Insurance Contribution Act) and the taxes go into a fund to cover old-age benefits, survivors’ benefits, and disability insurance.  We know these items collectively as social security.

FICA also diverts some of American household income into hospital insurance or Medicare.  Almost one and one-half percent of gross income goes to hospital insurance.

According to the article approximately 160 million households will see their take home pay reduced.  An expiration of the reduction means an additional $95 billion back into the federal coffers while families on average endure a $1,000 a year hit in disposable income.

While Washington ponders whether to extend the tax, isn’t this a good time for Mitt Romney and Paul Romney to propose something radical and outside the box?  Isn’t it time for the two men to say, let’s get rid of the payroll tax altogether?

The government takes these proceeds and uses them to finance a citizen’s supplemental retirement income or to offset health care expenses in addition to the premiums citizens pay when they get on Medicare.

Why does the government have to continue carrying out this activity?  Why not allow the citizen take on the role as consumer and take the 6.2% of their gross income and purchase his own retirement annuity and finance his own supplemental hospital insurance?  It is much more likely that 160 million consumers with an additional 6.2% of income entering the market for these services would do a better job of exercising choice while incentivizing health care providers and insurance firms to drive down the price of their services.

One hundred and sixty million consumers with additional cash to spend will incentivize the production of innovative annuity and hospital care products.  Potential insurance and health care providers standing on the sidelines may decide to enter the market to provide services, driven into the markets by the signals consumers are sending up.

Why Romney and Ryan would not take the opportunity to at least make the argument that wage earners could save on taxes if we got rid of this form of government intervention into the markets puzzles me.  Maybe they are not really the promoters of free markets they hold themselves out to be.

About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
This entry was posted in Economy, Elections 2012, Mitt Romney, Paul Ryan, personal consumption, taxes and tagged , , , , . Bookmark the permalink.

One Response to Wish Mitt Romney and Paul Ryan would tell us why we need a payroll tax

  1. Ken Ciszewski says:

    “One hundred and sixty million consumers with additional cash to spend will incentivize the production of innovative annuity and hospital care products. Potential insurance and health care providers standing on the sidelines may decide to enter the market to provide services, driven into the markets by the signals consumers are sending up.”

    Maybe. Then again, maybe not. I have long been of the opinion that one of the negative side effects of health insurance and HMOs is that it’s not health insurance for consumers, it’s (as a friend of mine once said) income insurance for doctors, hospitals, and other health care providers. All that cash just “feeds the monster (the health care system)” and actually reduces competition, causing what was called in the 1970s “demand pull inflation” (lots of money chasing relatively limited resources). In my opinion, that much more cash chasing after health care services would simply cause the cost of health care to rise even more than it already has.

    I have often said that if tomorrow, all health insurance went away except for what used to be called “major medical” (when I was very young–this covered things like hospital stays for appendicitis, tonsillitis, etc. but my parents paid the doctor for office visits without help from insurance), that prices would plummet, because there would not be so much money to “feed the monster”. Unfortunately, costs are now so high that what we now pay for broad coverage health insurance has effectively become “major medical”, because ordinary care can be very pricey.

    As for using the 6.2% for private investments for retirement, I would consider going along with that if and only if those who invest this retirement money are not allowed to profit from handling it in any way. Brokers and other investment managers could charge non-retirement accounts more instead. This would incentivise people to put away more in these accounts, but prevent those already getting rich from investing other people’s money from what receiving what would amount to windfall profits. This windfall for investment managers has always been one of my principal objections to privatizing Social Security. It is my opinion that those who want to do this really want to make the brokers and investment managers richer than they already are. These latter don’t need the money, the average citizen who needs to save for retirement needs it more.

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