Payroll Taxes Are the Achilles Heel of Social Security

On August 8^th, Donald Trump took four executive actions on coronavirus relief. One was a memorandum deferring, to the end of the year, payment of the employee portion of the payroll tax for employees making less than $4000 biweekly. (Employer payments had already been deferred in the CARES act.)

He did this, according to the language of the memorandum, because “This modest, targeted action will put money directly in the pockets of American workers, and generate additional incentives for work and employment, right when the money is needed most.”

In an additional Trumpian flourish, he stated: “If victorious on November 3rd, I plan to forgive these taxes and make permanent cuts to the payroll tax…I’m going to make them all permanent,” and: "If I win, I may extend and terminate… I'll extend it beyond the end of the year and terminate the tax."

To that effect, he included this language in the memorandum: “The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.”

The “payroll tax” is, of course, the FICA tax—part paid by the employer and part by the employee—that is earmarked for the Social Security and Medicare Trust Funds. The understanding is that Social Security and Medicare (SS&M) benefits are paid out from these funds. For FDR, that understanding “justified” SS&M in fiscally stringent terms that would make SS&M impervious to challenge from conservative politicians: “We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.”

“Taxpayer Money” Threatens Medicare-for-All (And Every Other Social Program)

-Apocryphal (often spuriously attributed to Mark Twain)

Three assertions:

• There is no such thing as “taxpayer money.”


• Taxes do not pay for government spending. (Nor does debt. No revenue is needed.)


• Leftists who continue to talk as if “taxpayer dollars” must be collected to “pay for” government programs are undermining Medicare-for-all and every other progressive policy initiative. 

I know these assertions run counter to an economic ideology that has been ingrained in us as obvious and irrefutable, known for sure. And I know how easy and seemingly effective it is to say things like: “Look at all the taxpayer dollars going to the military. We should spend some of those taxpayer dollars on healthcare instead.” But I want to show, with specific examples, why using this language is a bad idea—a really bad idea.

Maggie’s Farm

There are two reasons why it's important to stop talking like this: 1) Because it's not true, and 2) Because it perpetuates an ideology of how money and public financing work that is not only false, but profoundly reactionary and politically damaging—that is designed to, and will, impede achieving the most basic progressive goals.

Let's deal with the second point first, since I know a lot of leftists won’t overcome their resistance to understanding and promoting an economic proposition that runs counter to the common wisdom unless they can see the political point of it.

Consider the logic of this language: If government spending depends on tax revenue, if the government—the public authority—is an empty pocket that has to be filled with dollars that originate in the private pockets of “taxpayers,” that means public wealth depends on private wealth. That means private wealth is the source, the wellspring from which the public treasury draws; It means that, without large concentrations of private wealth (which are subject to the highest rates of taxation), the public authority cannot function.

Is that not precisely the theoretical grounding of capitalist socio-economic theory in its most regressive Thatcherite form?

If that's true, we are then in a polity where those who pay more dollars in taxes have a prima facie credible claim to demand more influence on the use of those dollars by the public authority—i.e., more political power. After all, the government depends on them; they are its donors, the breadwinners of this household, the source of its wealth. In a taxpayer/donor-financed polity, you can debate whether "taxation is theft" and to what extent “winners”—i.e., meritorious taxpayers—are paying for “losers” and “moochers”—i.e., “undeserving” non-taxpayers. It’s a polity where social programs of universal benefit exist at the sufferance—whether forced or voluntary—of the wealthy, subject to constant negotiation about how far that should go.

This is the paradigm of noblesse-oblige, welfare-state capitalism, whether more or less “generous,” where the public authority—the federal government—must go hat in hand to the wealthy to pay for public services.

Behind the Money Curtain: A Left Take on Taxes, Spending, and Modern Monetary Theory

Taxes do not fund government spending.

That’s a core insight of Modern Monetary Theory (MMT) whose radical implications have not been understood very well by the left. Indeed, it’s not well understood at all, and most people who have heard or read it somewhere breeze right past it, and fall back to the taxes-for-spending paradigm that is the sticky common wisdom of the left and right.¹

This, despite the fact that the truth of the proposition is obvious if you think through just a few steps about the process of money-creation. What makes it hard to see is the dense knot of conventional theory and discourse in which we are entangled, and which seems impossible to cut as cleanly as MMT suggests.

But the discussion around the newly-enacted Republican tax bill has brought the issue of tax policy to the forefront again, and it’s time for the left to realize how fundamentally wrong that common wisdom is, and how continuing to argue within the phony terms of the taxes-for-revenue paradigm occludes and reproduces a persistent reactionary fiction regarding what taxes are for.