Walter E. Williams

A fortnight ago, I explained some of the congressional deceit that has become part and parcel of Social Security. One was the 1936 promise of maximum wages subject to Social Security tax of three percent -- $3,000 -- which, controlling for inflation, comes to roughly $22,000 in 2005. The promise would have meant that $700 would be today's maximum so-called employee Social Security tax.

 Another lie was that there was a Social Security account with your money in it to which you had rights. There's no such account, plus, according to two U.S. Supreme Court cases -- Helvering v. Davis (1937) and Fleming v. Nestor (1960) -- you have no legal right, in the sense of a contract, to Social Security payments.

 There's more to the deceit and dishonesty about Social Security. Congress tells us that one half (6.2 percent) of the Social Security tax is paid by employees and the other half paid by employers. The truth of the matter is that all of it (12.4 percent) is paid by employees. You say, "What! It says on my pay stub that I pay 6.2 percent." Let's look at it.

 Suppose you hire me at $6 an hour. From that $6 an hour, you must deduct 35 cents in Social Security tax and add 35 cents of so-called employer contribution. Here's the big question: What is your hourly cost to hire me? If you said $6.35, go to the head of the class. Now comes the bigger question. If it cost you $6.35 an hour to hire me, what must be the minimum value of my contribution to your company's output? If you said $6.35, again, go to the head of the class. If you said that the value of my hourly output had to be $6, our agreed-upon wage, you'd be losing money and soon would be out of business because my hourly cost would exceed my hourly output.

 The fiction that employees and employers each pay half of Social Security taxes has survived since 1936 for two reasons. First, it was meant to disguise the true tax imposed, and second, it promises something for nothing -- a free lunch. And, when it comes to the promise of a free lunch, employers paying half, gullibility reigns supreme.


Walter E. Williams

Dr. Williams serves on the faculty of George Mason University as John M. Olin Distinguished Professor of Economics and is the author of 'Race and Economics: How Much Can Be Blamed on Discrimination?' and 'Up from the Projects: An Autobiography.'
 
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