are you lying to yourself?

How much do you pay for Social Security?  If you're like most people, you probably think you pay 6.2% of your salary.  And, under carefully-chosen definitions of words like "salary," and even "you," you'd be right.

So if you made, say, $50,000 in a year, at the end of the year we'd see that you paid $3100, or 6.2%.  And, of course, as a bonus, we see that your employer has also "contributed" $3100 into Social Security on your behalf.

Now, this thinking actually defies economics.  Economics tells us that employees are paid a value that approximates what they produce, and if you require proof of this, it offers a simple scenario for you to consider:  If employees were worth more money for the employer than they cost, then why wouldn't he hire more employees?  The fact that employers stop hiring at some point indicates that a marginal case exists, beyond which additional employees are a losing proposition.

Now, Social Security is all about tinkering with perceptions.  If we can get you to believe that your employer is paying the contribution, then you might be more agreeable to the tax.  And this is done by defining "salary" as something other than your employer's cost of employing you.

But at the end of each day, as the employer is forced to choose between hiring more employees, doing nothing, and letting employees go, it always comes down to what you produce versus what you cost.  And that cost includes his Social Security "match."

In other words -- in economic terms -- you pay the employer match on your Social Security contribution.  It comes out of what you produce.  You don't make $50,000.  You make $53,100.  And you don't pay $3100 for Social Security -- you pay $6200.  You don't contribute 6.1% -- you contribute more like 11.7% ($6200 divided by $53,100).  I say "more like" because your earnings are even higher when you consider other "employer-paid" costs of employment -- all of which are ultimately paid for out of your personal productivity.

Now, you can choose to look at it however you want, but the best science we have tells us that it works as I describe.  The rationalization -- that the employer is the one who pays -- is a lie we tell ourselves (and each other) to justify a political program.  It's about starting with the idea for a law people won't like, and then working backwards to find a way to explain it that's more likeable.  Like telling everyone their rich, evil employer is paying the bill.

The real question I want you to ask yourself is why anyone would favor policies that wouldn't be acceptable if they just took an honest look at them for a change.  And don't just stop at Social Security -- similar twisted logic snakes its way through much of the garbage politicians want you to agree with.

I used to think leadership was denoted by a strong guy at the front of the line who was gonna kill all the really bad dragons before the rest of us got there.  But in government I think it's more like having some guy pulling the leash, saying nice things so he can get the rest of us to the slaugherhouse under our own power.  I guess that's less messy than just shooting us here and loading us into a cart, huh?

Just food for thought.

Comments

[Hank Rearden]

What you're saying is essentially true; so I'm not trying to argue your point. However, a cleaner way to look at it is this: all costs associated with doing business contribute to overhead. The higher your overhead, the more difficult it is to offer a quality product at a good value. Thus, anything that raises the cost of a product without contributing to quality ADDs to the cost of doing business. Social Security, though noble in its aspiration, is the bane of employees in the private sector.

Business owners and executives, through the justifiable instinct of self preservation, will rarely take on more risk for less profit. In the end, it's the employees and customers who suffer the consequenses of governmental regulation. Somehow, though it's usually the "fat cat" (industrious, hard working, motivated, etc.) businessman who gets blamed.

Caveat: CEOs elected by shareholders are a different animal.

[John Galt]

That's a broader way of looking at it which does not contradict what I said, but I would not say it's "cleaner."

Because Social Security is completely fixed to compensation, and because the obligation is completely fixed to employment, there is no other source for this revenue except the productivity of the employee. Economically, this cost has no incidence on any other entity but the employee. Assigning it to the employer is purely a mind-game.

[Ragnar]

Under FICA, 1.45% of the 7.65% is technically a separate payroll tax for Medicare. This is also imposed on both the employee and the employer, and there is no maximum limit on this portion of the tax. No matter your salary, 2.9% is continually vaporized (with no fixed compensation)

The combined hit on employee take-home-salary and employer cost-of-hire could be argued at 15.30% (7.65% employee and 7.65% paid by the employer). The perception is that since "only" 7.65% is itemized on your paystub, you got a [Social] Security bargain, comrade.

Tinkering with perceptions? Indeed!

[John Galt]

I don't like to just double the percentages, since it assumes total earnings that wouldn't include the employer match. You have to evaluate the percentage after adding the match to pay -- it's the only way to do it honestly (and I don't intend to win the debate by just telling prettier lies than my opponent).

[Hank Rearden]

To answer your question about politicians supporting unwise legislation, I point to the conversation which took place when Hank was forced to sell his mines. The buyer (I forget his name) profited at Hank's expense. However, the buyer obviously knew it was government-sanctioned theft; which is why he tried to make it sound like he was doing Hank a favor. That’s what elected officials are doing. They profit (in money or votes) by feeding a pile of bovine feces to the tax payers, and then try to justify it by sugar-coating it--if you're lucky--and calling it a free lunch.

[J Green]

Not to twist an intellectual arguement into a philosophical one, but it all comes down to knowledge and spirituality. And no, I'm not kidding.

Knowledge is something that since forever people have assumed is transferable, you go to school and someone behind a desk or up at a chalkboard departs their knowledge onto you. This is a false positive. Knowledge is, like spirituality, solely a possession of the individual, it grows dependant on that individual and it may well grow with the right environmental conditions, but what you learn and how you learn it depends only on you - otherwise we could all be guaranteed the same education.

Spirituality has long been the monopoly of Religion, you can't practice faith without it (practically). Spirituality is not learned from others, you're simply put into the right environments, the correct social group from which "You" grow your spirituality. Knowledge is exactly the same. You do not learn because you were taught, you learn because you choose to accept things about the environment around you whether teaching took place or not.

The social system setup by every government I care to think of is simply an environment in which you're conditioned by every constructed part of it to grow a specific kind of knowledge, belief in certain things - beliefs even against reason, without logic and thus without justify-ability.

The American social system is filled with constructed conditioning tools, the majority of which are supported by the people, by you. You pay Social "Security" to protect this system. The catch is, your knowledge you believe you learned by going to school, by picking a career or by watching the discovery channel is telling you that these conditioning tools do a lot of good, making them worth the bad, the notion is, you're better off with them then you are without them. You didn't learn this notion at school, or from TV, you learned it from the very life you lead within the boundaries of the society you've been brought up in.

But... Remove the preceptions of society. Why must you suffer a little to receive something good? For whose benefit are you punished? Whose sins are you repenting for? And in the end, who benefits from your loss?

Taxes are not distributed evenly, you do not proportionally receive based on your contributions into society, the majority of taxation is spent at the top. In the end American society is a fountain constantly pushing money upwards to a fountainhead, with only droplets splashing down on the surface of a murky depth. This is the reality you accept because of an ingrained social fear, "it could be worse." This is why scare mongering is so popular today, and so effective.

This is why, when you dare to think, "it could be better", you unintentionally start to feel outside of society and that none of these system, Social Security as an example, are really working for you.

To conclude, should your government expect you to be happy fearing the worst being glad of what you have, or should the environment it provides to shape your knowledge present an America as it supposedly used to be - should the expectation be the American Dream or the American "it could be worse"?