The Proposal: End the Employer’s contribution to FICA and Medicare. Replace the $540 billion in revenue with a Revenue Tax, payable by all companies based on their U.S. revenue.
- Reduces the cost of employing American workers
- By 7.65%, almost $4,000 a year on average
- Ends a hidden subsidy for foreign manufacturers
- Makes domestic manufacturing more competitive
- Reduces the pressure to shift from employees to contractors
- Reduces the pressure to shift to automation
- Makes our tax code fairer
The Math: U.S. Employers contributed approximately $540 billion to FICA and Medicare in 2017, a rate of 7.65% on the FICA-taxable wages paid to U.S. workers. The Gross Domestic Product in 2017 was $19.4 trillion. Generating $540 billion in replacement revenue would require a tax of 2.771% on the U.S. revenue of all businesses that sell in the United States.
Winners and Losers: The winners are businesses that require lots of employees. If FICA taxable wages are more than 36.2% of a business’ expenses, this change in tax policy will reduce the company’s tax burden. The losers are the companies that don’t require a lot of employees to generate their sales.
Why Make the Change? It’s fairer. The group that receives a government service should pay for that benefit. The service that the government provides through Social Security and Medicare is stabilization of consumer demand. The government ensures that retirees are able to stay alive and have money to spend. All companies that sell to the U.S. population benefit from this service and all companies should pay for it.
Making the Tax Match our Time: When Social Security was implemented in 1935 there was almost no foreign trade and an employer payroll tax was an approximate way of making sure that every business that benefited also paid. The world has changed. A significant percentage of what is sold to American consumers is no longer produced by American workers.
Ending the Hidden Subsidy: Non-U.S. Manufactures enjoy the benefits of being able to sell to Seniors without paying the cost. Our government is providing a free service to businesses that produce outside of the U.S., while at the same time charging U.S. producers more and lessening the cost-competitiveness of U.S. workers. Ending the employer portion of Social Security and Medicare and instead moving to a revenue tax to replace the revenue would reconnect the payment with the benefit – all companies that benefit from stabilized demand would pay for it. Non-U.S. producers would no longer benefit from a government service subsidized by U.S. taxpayers.
A Fit with Existing Reporting Requirements: Functionally, businesses already have to report revenue on their tax returns. Adding a gross revenue tax will not require any new tracking or bureaucracy on the part of businesses, minimizing the additional paperwork burden.
Wouldn’t Distort the Competitive Playing Field: The impact of the change would be different for each sector of our economy. However since each business in a given sector would be impacted the same, no business would have a competitive advantage or disadvantage relative to other businesses in its sector.
Not a Retail Sales Tax: Retail Sales Taxes have typically been the purview of state and local government. The revenue tax would be on all revenue – retail, wholesale and services.
The employer contributions to Social Security and Medicare are a legacy of a different time and a different economy. The approach is unfair to U.S. manufacturers, makes U.S. workers more expensive to hire and hurts our ability to compete internationally. Ending the employer portion of Social Security and Medicare and moving to a national revenue tax would be a fairer, more rational approach that would benefit our country.