Politicians lie.

That is not really a new revelation I know. They tell you whatever they think you want to hear in the hope that will convince you to vote for them. If we accept the fact that individual participants in the political process can be less than forthright, would it come as any shock that when you get a group of them together the result is even bigger lies.

Currently, one of the hot topics of debate is how to reform the Social Security System. Now a post detailing all of the lies the government tells us about Social Security might put too big a strain on Mu.Nu's bandwidth so I'm just going to focus on the Big Lie of Social Security.

Your employer pays part of your Social Security.

Currently you are taxed 6.2% of the first $87,000 of income and your employer contributes another 6.2% The Big Lie is revealed when you look at where the employer's 6.2% comes from.

Assume you are a business owner and business is good. So good that you need to hire additional staff. You look over the numbers and you figure out that you can budget $30,000 for a new hire. But before you make an offer, you have to factor in what it will cost you to hire that employee. First, there's worker's comp insurance. If you have employees, you have to be insured against something happening to them. I would guess that the cost varies depending on the industry, but for our case, lets say adding this new hire to your policy is going to cost $1,000. Then you factor in the payroll taxes - FICA is the big one 6.2% of $29,000 is going to cost $1,798. Your medicare contribution for your new employee is going to cost you another 1.45% or $420. There are going to be administrative costs associated with this employee lets call that another $200. This leaves you with 26,582 in your budget for salary. You're going to make someone an offer at $26,500.

The bottom line is the “employer's contribution” has already been deducted from your bottom line. You are being taxed the full 12.4% for Social Security. It's just that half of it is done so that you can't see it.

It's a simple reality that most people probably don't take the time to examine. The costs of having an employee on the payroll are factored into the business decision of when to hire and what salary to pay. And the employer's contribution to your payroll taxes is deducted from what you are paid before the check is written.

Why do they do they tell you this lie? Take out your most recent pay stub and take a look at what you've paid for FICA for the year to date. How do you feel about that number.

Now double it.

Posted by: Stephen Macklin at 03:20 PM | Comments (1) | Add Comment