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.