Jeffrey Tucker

If you think of American wage-earners as swimmers, they were mostly underwater after 2008. Then last year, wages increased a bit. It was only 2.4% for the year, but it was like coming up for a slight gulp of air.

Now think of Congress and the president as the people in a boat pushing the swimmers’ heads back underwater. That’s exactly what they did when they let the payroll tax arrive on the first day of 2013.

The 2% increase wiped out virtually the whole wage gain for the previous year. It came as a shock to most workers. “There goes my raise,” was the cry heard all over the Web in the first week of the year.

Michael Daneau, who works a lighting store in Rhode Island, posted on his Facebook wall:

“I opened my paycheck today and noticed I got less pay than I usually get on a regular 40 hour week. Obama stole $20 more out of social security. So now I’m back to making what I was making before my last raise. All that hard work paid off! Stick around more hope and change is coming!”

Some follow-up comments:

  • “My wife is being taxed another $150 a month making less than $40,000. We will likely have to move back to an apartment from our rental house as a result”
  • “I’ve been drawing two days vacation pay each week since my heart attack in early Dec. One day pays for my weekly insurance premium, the other goes towards my rent. This week, I have a $6 reduction in total net ‘income’…”
  • “I’ve lost $18 per week”
  • “I make about $50,000 a year. I will lose approximately $70 a month due to this hike. Someone with a brain, please explain to me why in the hell my taxes should rise when we’ve all seen the nauseating curve of how well the 1% are doing.”

It came as a shock to most people because a payroll tax increase had not really been part of the negotiations. We endured weeks of wall-to-wall coverage of the “fiscal cliff.” It was a brutal and heavily partisan battle. How much spending? How high or low the income tax rates? Either way, only the rich would be hurt, right?


Think again. The payroll tax is the most broad tax in increase, taking a far greater bite out of income than the income tax as such.

But where was the discussion of the payroll tax increase? There were no speeches about it. There was no back and forth between the parties. This is because, says The Washington Post, there was “general agreement” it had to happen. The government provides these programs. They disbursements have already gone out. They must be paid for. You are on the hook, period.

Earlier in the year, when this subject was discussed behind closed doors, The Christian Science Monitor reported:

“Getting Congress to agree to continue the payroll tax cut yet again might have been problematic. Many politicians, from Rep. Nancy Pelosi (D) of California to Sen. Orrin Hatch (R) of Utah, were less than enthusiastic about extending it. That is in part because the money that would have come from wage earners’ pockets for Social Security was coming instead from the U.S. Treasury’s general fund.”

If anything, the Republicans were even slightly warmer to the payroll tax increase. This is because it was the Democrats who made the temporary decrease part of the stimulus package of 2010. The idea back then, inspired by Keynesian-style theory, was that by letting workers keep more of their money, they would spend more money and thereby increase aggregate demand, which supposedly addresses the key to why the economy is faltering.

Republicans traditionally favor a more supply-side solution. They want tax changes that benefit producers and investors, based on the idea that what is causing the economy to falter is a lack of real investment. They, as much as the Democrats, see the tax system as a tool for a different sort of economic stimulus.

Both sides are right, but for the wrong reasons. Whenever private property is transferred away from owners to the government, the prospects for recovery are harmed. The point isn’t to boost either the supply or the demand side, but simply to let people keep more of their money. Whether that money is saved or spent, invested or blown on fripperies, what matters is that economic growth flows from the decisions that people make on their own, and not the decisions that government makes for them.

But people in Washington of either party aren’t very warm to this idea.

Note this for the future: What matters is not what they debate, but that what they together decide should not be discussed at all! This is the real business of government. It’s the issues that the political parties agree on that the public need fear most. This is the area in which the most deadly fleecing occurs.

So it came as something of a shock to millions to see their paychecks slammed by $20-40 every week. Where is that raise I was just granted? How is this even possible?

Another factor here is the following: Ever since the 1940s, the payroll tax has been fobbed off on the public not as a tax, but as an insurance premium for services coming later. You know, like Social Security and Medicare. In the market, we pay premiums for services delivered at a later date all the time. Isn’t this just the same?

Well, it’s not the same. For one thing, these “insurance” programs aren’t insurance at all. They are direct transfers of wealth. Young workers today are paying the bills for the money that retired workers have already spent. That’s not the market at work. That’s pure redistribution.

Another crucial factor here: No one elects to pay these stupid taxes. They are forced on us. And just as a sweet little reminder that this is true, the government prosecuted a prominent case of failure to pay just days after the payroll tax when up.

Fox News reported on Jan. 6:

“An eastern Wisconsin business owner will spend about a year in prison for failing to pay taxes that had been withheld from employees’ wages.

“According to court records, Lisa Bartz Vanden Elzen, co-owner of Dairy Transport Services of De Pere, failed to pay about $193,000 in payroll taxes. She’s also accused of failing to pay the Internal Revenue Service $81,000, the employer’s matching share of those taxes.

“The Green Bay Press-Gazette reports the 47-year-old was found guilty in U.S. District Court of failing to pay payroll taxes that had been withheld from employee wages from July 2005-December 2010.

“She was sentenced to 366 days in prison and ordered to pay restitution of $274,000 for federal tax violations.”

The message is that the government means business. You may not refuse its benevolence. If you do, you will go to jail. There is no way out. They’ve got the guns.

But of course, you can push people only so far. The growth of the informal sector continues, and this sneaky little robbery is going to push more people into the role of noncompliance, choosing modes of living that avoid the official system altogether and living on a cash basis, using modern financial tools like anonymous debit cards to make doing so more efficient than ever.

Washington tells us constantly that they are looking after our best interests and want to stimulate the economy toward recovery. This little caper is the best and clearest evidence I’ve seen in recent days that this is not the case. What Washington really wants is more of your money.

Jeffrey Tucker

Original article posted on Laissez-Faire Today

Jeffrey Tucker

I'm executive editor of Laissez Faire Books and the proprietor of the Laissez Faire Club. I'm the author of two books in the field of economics and one on early music. My main professional work between 1985 and 2011 was with the MIses Institute but I've also worked with the Acton Institute and Mackinac Institute, as well as written thousands of published articles. My personal twitter account @jeffreyatucker FB is @jeffrey.albert.tucker Plain old email is

  • LeadZep

    The Government knows how to Spend Your Money better than You. We should all just send them our Entire Paycheck and let them decide where we live, how high to set our thermostats, how many tv’s, computers, appliances and how many watts our light bulbs are… They also need to tell us what we can eat, drink, smoke and amount of Exercise we need. Yes, that is the way it should be… They are Masters and we are the indentured servants to them! After all, we Vote from them so they can Guide us. They went to their Ivy League Schools, and they know best… Yes, the New Freedoms we have are because of them! Support Your local Politician!!!

  • Tom Sawyer

    Why should the govt want more of my money when they in fact print it? It is all theirs in the first place. It can’ t get into the system unless they print it.

  • G

    The most dysfunctional system is the government.

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