EMPLOYER'S SHARE OF TAXES? GUESS WHOSE IT REALLY IS

Published: Friday, Oct. 18 1996 12:00 a.m. MDT

The average worker has no idea what he pays for government. The Mackinac Center for Public Policy, based in Midland, Mich., has come up with a wonderful idea it calls the "Right to Know Payroll Form." They propose that each pay period, employers supply workers with a detailed estimate of visible and concealed taxes. If workers are better informed about government costs, they might make different political choices.

The Mackinac Center uses a hypothetical scenario in which Acme Manufacturing Co. hires John Doe and pays him $916.67 every two weeks. The company's cost to hire him is much more. Employee costs the company must bear in addition to salary include: employer's share of Medicare ($13.29), employer's share of Social Security ($56.83), workers' compensation ($9.46), unemployment insurance ($10.66) and mandated program administration costs, i.e. Americans with Disabilities Act, Family and Medical Leave Act and affirmative action ($4.25). Finally, the company has to administer John Doe's federal, state and local taxes ($15.43).Subtracted from John Doe's gross pay of $916.67 are: federal income tax ($105), state income tax ($36.45), employee's share of Social Security ($56.83), employee's share of Medicare ($13.29) and city income tax ($18.43). John Doe takes home $686.67. And some of that will go for even more taxes, such as sales taxes on gasoline, clothing and telephone service.

If we asked John Doe how much he paid in taxes every two weeks, he might be able to come up with the answer $230 - the amount deducted from his gross paycheck. But he's really paying much more. We see that by asking the question: If it cost Acme Manufacturing Co. $1,026.59 to hire John Doe, how much value must he add to the company's bottom line in order for the company to remain profitable? If you said at least $1,026.59, go to the head of the class. So who really pays the so-called employer's share of Social Security ($56.83), Medicare ($13.29), unemployment insurance ($10.66) and other so-called employer costs? If you said John Doe, again, go to the head of the class. No employer who expects to stay in business will hire a person who costs him $1,026.59 bimonthly but who can only produce $916.67 bimonthly (John Doe's gross pay).

The reason Congress created the fiction of "employer's share" of Social Security and Medicare and require employers to "pay" workers' compensation and unemployment compensation is purely for purposes of worker deception. They figure, and probably correctly so, there would be political hell to pay if John Doe knew that Social Security really costs him $113.66 every two weeks and Medicare cost him $26.58. There'd be even more political hell to pay if John Doe were under 40 years old and knew he'd be paying that money into Social Security and that the system will be bankrupt when he retires because it is an unfunded Ponzi scheme. Directors of a private retirement program, having any characteristic of Social Security, would be put in jail at best - or more properly executed.

I hope America's CEOs see the merit of the Mackinac Center for Public Policy's "Right to Know Payroll Form" and include it with employee pay statements. But there are two things that might stop them. First, the IRS might deny companies the right to do so. Second, and probably a more important hurdle, is that CEOs, for the most part, are cowards. They are so dependent on being in the good graces of government officials they wouldn't want to do anything that might anger politicians and bureaucrats.

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