Pay Cut Disguised as Tax Cut

    By EmmaZahn on Thu, 06/16/2011 - 11:34am |

    My reply to A Better Payroll Tax Cut | ThinkProgress

    How can I convince you that what you are considering is in reality a general pay cut.

    What is a payroll tax to employers is a form of compensation to employees. In the case of FICA it is deferred compensation in the form of a retirement annuity. Last year's cut letting employees take the compensation now rather deferring to retirement was one thing but now to even consider cutting the employer's portion without requiring that it be passed on to employees is effectively a cut in their pay and a windfall to the employers.

    Of course owners and the self-employed will love the idea but don't progressives generally support labor?

    Comments

    I agree, Emma, and wondered at the White House's 'assurance' that SS and Medicare would be compensated through general funds.  WTH?

    But I don't follow the logic of 'the self-employed will love the idea'.  We pay quarterly, and all of our own SS (which I have always found punitive since Americans allegedly love innovative work) though come to think of it I don't know about Medicare.  But I don't see how any of it changes.  Explain?

    And Yglesias: yech.


    by we are stardust on Thu, 06/16/2011 - 12:48pm

    Was mostly thinking how the self-employed would actually get to keep the 'tax cut' as income whereas employees of other will not, afaik.  Nothing I've seen indicates that employers are required to pass the savings through to their employees.

     


    by EmmaZahn on Thu, 06/16/2011 - 12:57pm

    Gotcha; but I don't think we'd benefit, or that anything would change for us.  There was at least one stim payment the self-employed never saw.  ;o(

    But I hope you left your response on Matt's blog; I didn't check too far down the comment thread.


    by we are stardust on Thu, 06/16/2011 - 1:27pm

    It really would not be much of a stimulus but at least it would make at least a couple of stops along the way before making its way back to the money marketers as either savings or debt service.    

    My comment at the bottom last time I looked.  Seems I am always too late to the party to comment much but I do have my hot buttons. :)

     


    by EmmaZahn on Thu, 06/16/2011 - 1:41pm

    I think I should maybe defend Yglesias a little.  At least he recognized the windfall to employers.  Not many of the bloggers I read seem able wrap their heads around the idea that FICA is compensation in the form of mandated insurance.  I think it is important to remember that when (if?) mandated health insurance goes into effect and businesses start dropping their own group medical policies without passing through the premium savings to their employees as pay raises.  

    Employees, especially the non-unionized, have been thoroughly indoctrinated with the phrase employer-paid-this and employer-paid-that.  It makes thinking of those mandated employer paid things as part of their total compensation.  It surprises me that strongly pro-labor progressives have not jumped on that aspect of the loss of so many 'benefits'.  Pay cuts are what they are.

     


    by EmmaZahn on Thu, 06/16/2011 - 1:59pm

    Are there any liberals left in this goddamn country besides Bernie and Dennis?


    by Richard Day on Thu, 06/16/2011 - 1:49pm

    At this point, I'd support pretty much anything that has 5% chance of working, where 'working' involves job creation. Even if it messes with SocSec's revenue stream.

    Don't know if this even meets that low bar. This supposedly incentivizes job creation by goosing corporate profits, leaving so much cash sloshing around they'll want to hire. But corporate profits are already at record highs, and they're not hiring. So I don't see how goosing profits is a promising channel to jump start job creation. They're currently just sitting on their profits, and there is no reason for that to change with even more profits. Even with high profits they won't hire because there is no prospect of increased demand. On the contrary, there are real prospects of a second dip.

    Dunno, maybe I'm missing something.


    by Cho on Thu, 06/16/2011 - 1:59pm

    The employees are certainly getting a pay cut with this plan. But the stimulus action here sounds more like Nixon's price control than a direct profit taking scheme.

    If the cost for a certain category of labor falls in all sectors of the market, the price of some commodities will be lower for the consumer. The idea would be brillant if the aforesaid consumer wasn't buying cheaper things with less cash in hand.

    In regards to the boost to the self-employed, any benefit would be temporary. The measure effectively makes all employees self-employed if they have to pay in the employer's portion. In that sense, it is an incentive to quit your job.


    by moat on Fri, 06/17/2011 - 7:22pm

    In  a sense all workers are self-employed.   The words we use affect how we perceive things. Calling any part of an employee's total compensation 'employer-paid'  is disingenous at best.  

    FICA is basically a mandated retirement annuity premium for employees that employers are required to match.  From the employers' perspective their portion is a true tax...a use tax....get it?  use/employ. 

    Sorry, I am not really interested in the generally-accepted macro econometric way of looking at it because that obscures the genuine lost compensation that will result from this so-called payroll tax cut.

    Besides it is too pitifully small to be a real stimulus.

     


    by EmmaZahn on Fri, 06/17/2011 - 8:01pm

    I was hoping that taking a macro-econometric way of looking at the measure would emphasize how it was ripping off employees and was not a "stimulus" for the market.  When you are a cost that is passed on to the consumer, it is the consumer who pays you.

    From this employee's point of view, the fact that my employer pays in their portion of FICA is a big incentive to stay with their program. It is not just the money but how my employers have to administer the payout. Without that element, I might as well file 1099 and go my own way. 

     


    by moat on Fri, 06/17/2011 - 8:41pm

    Not sure I really understand your perspective.  I would just as soon employers were out of the so-called fringe benefit business.  It confuses too many societal issues;  blurs too many lines between public and private responsibilities and duties.  Better if everyone knew how much they truly make and cost.  

     


    by EmmaZahn on Fri, 06/17/2011 - 8:58pm

    I hear what you are saying about the fringe benefit business. Whatever an employer does or does not do, each employee ultimately has to represent themselves. Especially later on when they count up what money they really have.

    What I am trying to say is that the matter of employer contribution in is not just about fringe benefits but involves a division of labor. Some people do business, others give up a lot so they don't have to. Another group never imagined that they had a choice in the matter.

    It may be better if everyone knew how much they made and cost but there is a well demonstrated desire not to calculate those things by many people who take that point of view for many different reasons.

     


    by moat on Fri, 06/17/2011 - 9:33pm

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