Note to readers: Someone in comments below mentioned the widely misunderstood Social Security Trust Fund. I am somewhat a wonk, and have written about such matters. (I realize that issues of aging have limited appeal, which is why I asked the younger Fauxlex aboard, to write about issues with broader appeal.) Rather than rewrite the piece on the Trust Fund, I am simply re-dating it. If all goes according to plan, it should appear below with the original comment thread intact. From 6/26/2018:
The above image is making the rounds on Facebook. Later in this post I will talk about the so-called “Social Security Trust Fund” and how it never was and never will be. For now I want to thank my friend Kevin for putting up his post directly below called A Crashing Success, as it offers an easy and early escape from this post about (cue violin screech) … taxes!!!
Go now, quickly, or prepare to be flooded with the conceptual abstractions that are used to justify the theft of our hard-earned money. The words “hard-earned” are important, as there are other forms of wealth that are easily owned by people who by pure chance slid down the right birth canals – trust funds, stocks and bonds, inherited wealth and Cayman bank accounts. The essential feature of taxation is that hard-earned money is heavily taxed, while the birth-canal funds are only lightly touched, if at all, by the IRS.
So journey with me now beneath the fold, or make your escape. The particular tax I am going to write about has a name you might know, one that sounds like a disease or the claw of a wild beast. It is called … “FICA.” From that word springs the myth of something called a “Trust Fund.”
No one understands the Internal Revenue Code. It is massive and complex. People who make their living preparing income tax returns thrive not so much on the complexity of the code, however, but rather on but on the flight or fright reaction in most people … it is taxes! Run away!
Thus does preparation of the simplest of tax returns involving wages and perhaps a little bit of investment return generate ungodly fees for tax preparers like H&R Block. I have long tried to convince people, to no avail, that their taxes are understandable and that they can easily do them without outside help. Basic income taxes are simple.
But simple or complex, my higher purpose here is to help the reader understand that the ultimate objective of the tax code is to keep regular people in chains. The tax system takes far too much money from working people – not just through our dual* system of income taxes, but also Obama’s “Affordable” Care Act as well. Though not technically a “tax,” being forced by ACA to pay exorbitant premiums to private companies for substandard health care is a burden that feels very much like a tax. Add all that to the student loan program, another racket, and we are kept in perpetual pursuit of the elusive carrot. All these things combine to assure us that the American dream remains, like the Trust Fund itself, a myth.
That is not an unintended consequence. It is the objective. In other more civilized parts of the world (and I do not know why this is so), health care and education are part of the infrastructure. Here in the U.S. they are part of the system of oppression.
*I say “dual” tax system, as working people pay two taxes, FICA, and regular income tax. The IRS Form 1040 is devoted exclusively to the income tax, ignoring FICA. By the time you fill out your 1040, they have already given you a haircut, having taken 14.2% of your earnings. They also (very deliberately) over-withhold regular income taxes from your wages, generating what they euphemistically call a “refund,” actually an interest-free loan to the government.
The most onerous tax on working people is partly hidden from us – “FICA” it is called, an acronym from the 1930s no longer important to decipher. Supposedly used to fund Social Security and Medicare, FICA taxes are thrown into the pot with all other government revenue. FICA is also used to foster the illusion that there is a thing called the “Social Security Trust Fund.” This is fiction. There is no fund, there is no trust. They tell us now that the Trust Fund has in it $2.9 trillion. That is an important lie, and they go to great lengths to make it seem real. It is not. The actual contents of the Trust Fund are $0.00. After all, a debt is only as good as the borrower. There is no intent to repay one cent of the Trust Fund, ever. Move along.
Former Federal Reserve Chairman Alan Greenspan claimed that the Trust Fund is real for two reasons: It is a legal claim on an asset, and the asset (the full faith and credit of the taxpayer) is real. Greenspan, however, overlooked a critical factor, intent to repay. It does not exist. It has never existed. Reality is this: The Trust Fund is nothing more than the official record of excess taxation of working people.
I am going to go over the mechanics of the FICA tax – please don’t shy away. It is easily understood. None of this is beyond anyone’s grasp.
The FICA tax as seen on our paychecks is a 7.65% deduction off the top of wages, money never to be seen again. But there is deceit behind it, as we are told that our employers “match” that tax by contributing an additional 7.65% to the government. This cannot be.
Think of it this way … no one can be legally responsible for someone else’s expenses. We can make gifts, but our employers do not make gifts. To have employees, they must pay wages. The “matching” portion of FICA that they pay is not their money, but ours. They had to budget that amount to hire us, and we have to justify it with our productivity. It is part of our wage.
So what happens with the “employer match” of the FICA tax is this: That 7.65% part of our wage is diverted from us before we ever see it and given to the government. It is a hidden tax, the kind of tax that governments love the most.
I won’t bore you with calculation of the real FICA tax on working people, 14.2%. If anyone is interested, I will expand on it in the comments. Just understand that when we got our first job and earned our first dollar, we already paid our first hidden tax.
The government is taking 14.2% right off the top of everyone’s wages. There is no way out, no deductions, exemptions or credits. The FICA tax does not appear on your Form 1040, though 7.65% of it turns up on your W-2. There are no deductions against it, no way to get it back once paid.
That is not a problem, you say, since we all have to pay it, right?
Not so. For fiscal year 2019 it is estimated that the government will collect $3.422 trillion, of which $1.688 trillion (49%) comes from income taxes, and $1.238 trillion (36%) from FICA. The two taxes together are a hefty one-two punch. FICA, taken from workers alone, almost equals the income tax, which is the only tax the wealthy (allegedly) pay.
On the left-hand column below is income that is subject to FICA, and on the right forms of income that are exempt:
Notice something? On the left is income of ordinary wage earners, on the right is income of the wealthy. Consequently, only working people are hit with a 14.2% tax on all income, while the wealthy for the most part do not pay FICA.
A side note, and a little insight into the true nature of the beast: We all know (or at least suspect) that the wealthy hide their money in tax havens and that little effort is made to repatriate it. Years ago congress was pulling its collective hair out over a serious problem – waitresses and waiters we escaping tax on their tips! Some working people might actually be getting ahead! (Again, cue violin screech.) They have since closed that diabolical loophole. Those goddamn greedy waiters got their comeuppance. Tips are now taxed. Meanwhile, Cayman accounts are untouched.
So, FICA supposedly finances Social Security. Is that program in trouble then? No. If we just get rid of the notion that it is funded by the FICA tax, it is fully funded now and forever by the general tax system. This includes government revenue from all sources, including FICA and regular income taxes, along with tariffs, fines, fees … one big pot of money. The purpose of FICA is not to fund Social Security and Medicare, but rather to hammer working people.
Add to that the fact that the currency is controlled by the Federal Reserve, or better said, under control of the oligarchs. Consequently (this took time for me to grasp), it is all one giant illusion – there is no national debt, no deficit. Those are scare words, nothing more. Everything is under control of those who control the currency. The scare words are useful, however, in that they are used to prevent reforms such as building our infrastructure, fixing health care or funding education beyond high school. We can’t afford those things, they tell us, because of the deficit, or the national debt.
What we have in our tax system is a fear-based system of social control. All working people pay the 14.2% FICA tax. Most of us are in the 15% income tax bracket. FICA is a first-dollar tax, the income tax a last-dollar tax. So most of us are paying 29.2% of our last-dollar in taxes. Add to that state and local income and sales taxes and advanced education costs. Add Obamacare premiums, and that first $7,350 in medical costs not covered, student loan debt, mortgages, car payments … it all amounts to this: Loss of job is a tragedy. Saving for the future? Hardly anyone does that, and to be kind, saving is next to impossible given the pressure we are under.
The purpose of the whole scheme is to keep us chained to our desks. Way back in time ordinary people came to the colonies under a system called “indentured servitude.” It never ended.
Of course, we can always make it to retirement and lay back and take it easy, right? The next segment of this post will deal with the final insult, another hidden tax, this on Social Security benefits. Congress, after fixing that dreadful problem of untaxed tips, went after retirement benefits.