Cutting the FICA tax to stimulate the economy ? 🤑

Social security is an important program that is funded via a regressive tax that is most acutely felt by the working poor and the lower middle class. For many low end earners, the FICA is the biggest tax they’ll pay out of their paycheck.

That’s seen as tolerable of funding these programs as it means that the important program of social security and Medicare will be funded. Social security is meant to provide about a third of retirement income for most adults – but for some of bad fortune or lack of savings it’s a vital tool against extreme poverty in old age. But the regressive nature of taxes funding it are bad for the working poor.

In times of a weak economy, suspending the FICA tax would provide a modest boost to the wages of workers, but I think they’re should be something to back fill the loss of revenue to government. Maybe borrowing and bonds are appropiate but that’s just kicking the cab down the road. It risks creating an unfunded liability that could encourage politicians who oppose the social safety net and taxes to cut social security and Medicare in future years.

There is a lot attraction on the surface to making Medicare and Social Security look like programs that you pay into today for benefits tomorrow. Even if that’s not how the programs work in reality – they’re mostly pay as you go – with a promise to future generations to continue. But it’s not a great way to fund them as it puts a big tax burden on the working poor who disproportionately pay the FICA tax even if they have the most to gain from it.

I would much rather see the FICA tax replaced with progressive taxation and fees on vices and institutions that cause real harm like the fossil fuel industry. Maybe a carbon tax could be part of the solution. But I also think corporations and the wealthy should pay more in taxes to fund Medicare and Social Security and take more of it off the backs of workers.