OT: The ‘Skin in the Game’ Argument

Posted: January 3, 2013 in Uncategorized

With ‘Fiscal Cliff’ negotiations and the predictable ‘compromise’ that resulted in more soaking of the rich, there is one change that may have gone unnoticed for many wage earners – that is, until they get their first paycheck of 2013. On January 1st, the Social Security tax increased from 4.2% back to its 2010 level of 6.2%. This 2% increase in taxes means that someone who earns $50k a year will pay an extra $1000 in taxes over the course of the year.

This tax hike brings to my mind the infamous leaked video of Mitt Romney in a rare moment of candor talking about his views of the portion of America who pays no federal income tax:

There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them. And they will vote for this president no matter what…These are people who pay no income tax.

In one statement to a group of rich potential donors, Romney probably did away with any chance he had of winning the election, but the sentiment is a common one among conservatives, who feel that a large portion of the country has no ‘skin in the game’ when it comes to tax policy and should not be allowed to vote on the fate of others who do. This has been a losing argument for Republican candidates in general for one simple reason: it isn’t true.

While not categorized as ‘income tax’ by the IRS, payroll taxes are federal taxes based on income and are paid directly by the wage-earner, and indirectly by matching funds from the employer. The total for the Social Security/Medicare portion of payroll taxes alone is 15.3% of a worker’s wage up to $110,100, after which no tax is levied. The percentage, therefore, decreases the more income is earned over that amount, making it a regressive tax. Investment income, or ‘unearned income’ is also not subject to this tax. This is how Romney himself was able to only pay 14% effective tax rate on his income while nearly all of the working poor pay a higher percentage.

In addition to the 15.3% payroll tax that everyone with a job pays, workers and their employers are also subject to unemployment tax, excise taxes on gasoline, car registration fees, and state and local taxes (sales tax), including property taxes, which are either paid directly for homeowners or baked into the rent payment. When all of these taxes are taken into account, the tax burden for even the lowest 20% of earners is at least 16% , and goes up from there. While there is an increasingly large contingent of people who receive various kinds of government welfare, and even some who refuse to work, this number is nowhere near the 47% that Romney was caught demeaning in the video.

Part of the effort to raise up a new generation of grassroots conservatives must be to reach the working poor, a demographic who is hurt every bit as much as the middle class by big-government policies and the resulting high taxes. Giving them no credit for paying significant portions of their paychecks in taxes is not the way to accomplish this. The 2% raise in payroll taxes is another reminder to any worker that government is inefficient and erodes at the ability of everyone to enjoy the fruits of their own labor. The fact that Social Security is likely to be completely gutted by the time many of us are old enough to receive back the money we paid in is also a testament to the failure of government to meet our needs. We want smaller government, not so that poor people can pay even more taxes, but so that everyone can pay less.

When asked by a reporter about the half of the Americans who don’t pay income taxes, Ron Paul said, “Good! We’re halfway there!” The answer is not more class warfare, but a populist uprising that unites people who all want Liberty and the capacity for self-determination restored. This is the way forward for the Republican party in the wake of tremendous losses and constant capitulation from establishment leaders like Boehner and McConnell.

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