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    Warren Buffett’s rank demagoguery on FICA

    Warren Buffett’s rank demagoguery on FICA

    Warren Buffett has an op-ed in The NY Times bemoaning the fact that he and other super-wealthy investors pay a lower percentage of their income in taxes than their secretaries and other lower-paid staff members.  This is an argument frequently heard from Democrats.

    But in making that argument Buffett misleadingly lumps federal income taxes in with that he calls “payroll taxes.”  Payroll taxes are known as FICA (the Federal Income Contributions Act), and it is the percentage employees and employers pay on wages with a limit to fund social security and Medicare.

    As I have posted before, FICA is not a tax in the way other income taxes are taxes; FICA is supposed to be a pay-in to the mythical social security “lock box” which will provide funding for social security payments.  The reason there is a cap on the amount of wages subject to FICA is that there also is a cap on social security benefits (by contrast, there is no cap on the smaller portion of FICA used to fund Medicare).  FICA payments used to fund social security were not intended to be a general revenue raiser for all sorts of unrelated government spending, and were tied to wages because social security was a type of retirement plan for wage earners.

    In reality, the line has blurred and FICA payments now are loaned to the Treasury for general government spending.

    When Buffett and others (including those people who heckled Mitt Romney recently) demand no limit on FICA, and apparently not even restricting it to wages, what they really are saying is let’s create a scam whereby we compel people to pay unlimited amounts into the social security system with no correlation, even indirectly, to social security benefits, with money which will not be used for social security.  What this does put another nail in the coffin of social security by treating FICA as just another tax with the revenues to be used for things other than funding social security.

    Buffett goes even further, echoing Obama’s call for a continuation of the “payroll tax holiday,” i.e., allowing middle income taxpayers to pay nothing into social security.  This simply further divorces contributions from benefits and turns social security into just another welfare program.  In fact, it creates a “double dipping” effect which further damages social security funding, because wage earners get the equivalent of a refund of their FICA obligation yet still get social security benefits, literally something for nothing.

    Some of the investing rules which Buffett cites in his article may be worth revisiting because they are divorced from economic reality;  but let’s not forget that it is people like Democrat Chuck Schumer who have been the most vigorous defenders of “tax loopholes” for hedge fund managers and others.  Regardless of whether these investing rules are changed, Buffett should know better than to lump ordinary marginal tax rates in with FICA payments, and to use esoteric investment taxation as an excuse to raise taxes on small business owners and other job creators.

    While the left may cheer this soak the rich strategy and Buffett may get a feel-good out of it, in fact all they are doing is playing into the destruction of social security as they claim to want it, turning social security into just another taxing and spending mechanism to be played with as political and fiscal circumstances dictate.


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    The games the federal government plays…

    “Since the total national debt went up every year under Clinton, there wasn’t a real surplus. The government just borrowed money from trust funds instead of from the public, called the borrowed money income, and claimed to have a surplus.”


    Zachriel | August 16, 2011 at 8:46 pm

    Zachriel: Social Security has been part of the unified budget since the 1960′s.

    Sherman Broder: The games the federal government plays…

    Social Security has been part of the unified budget since the 1960′s.

    The deficit is *defined* as the difference between spending and revenues. Public debt decreased in the latter years of the Clinton Administration, the very definition of a surplus.

    More importantly, they were structural surpluses, meaning the U.S. would continue to generate surpluses through the normal business cycle.

    Zachriel, follow the argument.

    Debt owed by the Treasury to the various federal trust funds is NOT debt held by the public and isn’t accounted for in the table you provided.

    They didn’t call him “Slick Willie” for nothing.

    Zachriel | August 17, 2011 at 8:44 am

    Sherman Broder: Debt owed by the Treasury to the various federal trust funds is NOT debt held by the public and isn’t accounted for in the table you provided.

    The table does include both on-budget and public debt, however, a surplus is *defined* as revenues exceeding expenditures, and the U.S. had surpluses at the end of the Clinton Administration, with public debt set to continue its decline.

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