Our family have been fans of Ben Stein for a long time. We loved him as the monotone economics teacher in Ferris Bueller's Day Off and as the host of Win Ben Stein's Money on Comedy Central years ago. Ben is not just an actor. He's an economist, lawyer, writer and Republican. I'm a fan of his New York Times column in the Sunday Business section.
His March 9, 2008 column took the form of a letter to John McCain telling McCain what to do with taxes, if he became president.
Basically, Ben took the time to explain why we have a huge deficit and how to fix it. We're spending enormous amounts of money on entitlements, defense and other government-run programs. He went on to say that our nation can't afford to continue to run up deficits by keeping taxes so low. He says we need to tax the people most likely to be able to give up some of their income -- the top earners. He makes a pretty good rebuttal to the editorials in the Wall Street Journal which take the opposite point of view.
But the whole thing got me thinking about taxes. The most punitive, regressive taxes we have are payroll taxes. I mean, even teenagers in part-time or summer jobs or the poorest landscape workers or check-out clerks at Wal-Mart have to pay payroll taxes. They may not make enough to pay income taxes, but payroll taxes are withheld from everyone from the first dollar. Even worse, the employer has to match the tax. This means that employers pay far more than salary for each worker. Small business owners, sole proprietors and entrepreneurs have to pay both sides. Yet, once an salary has exceeded $97,500, the tax (both sides) disappears, giving workers and businesses a sudden boost. These Federal taxes include the Social Security Tax (6.2% from each person, and 6.2% from each business) and Medicare tax (1.45% each).
The way the system is set up creates distortions. It makes people hire workers off the books. It encourages the hiring of illegal immigrants. It hurts growing businesses and low-income workers and nonprofits, who have to pay far more than the minimum wage, once the tax is added in. If we could eliminate these taxes on the lowest-income workers (up to $25,000 in income) and take the income cap off, I believe we could free up a lot of capital that could go to paying off personal debt and funding health insurance. It would spur growth and hiring and reduce the incentive to hire undocumented workers. It would be a very creative way to increase taxes on the highest earners, while ensuring that Social Security and Medicare would remain solvent as the Baby Boomers enter retirement.
I hope that someone who reads this will help spread the word about this idea. Is anyone reading this and agreeing with my idea? Anyone?