Revenue

Social Security Taxes Are Mandatory
Some people say that our analysis is flawed.  It is really one objection that has two different applications.  We say that raising taxes will lower economic returns.  As we lower the returns, we increase the risk that younger voters will vote the system away.  Separately, we say that raising taxes is not simple.  As tax rates go up, people will flee the system.  They will work less and look to take more compensation that is not included in payroll taxes.  The objection is that Social Security taxes are mandatory.
“Social Security is a mandatory system, and young workers can't escape participation"

~David Nicklaus
Business columnist
St. Louis Post-Dispatch

  

Our Response

We disagree with the unilateral nature of the statement.  To varying degrees, every American has some ability to avoid the system, and many have a significant influence on how much Social Security that they pay. 

First, Social Security affects a portion of what you get paid.  You are taxed on your wages, but every other compensation is excluded.  Stock options, health care, and other benefits are not covered by payroll taxes.  If businesses or people want to avoid the system, they will push wages into benefits which are not taxed. 

Second, there are 25 million sole proprietors who have complete discretion to structure paychecks to avoid the system. 

Third, recent economic studies show that tax evasion is directly correlated to effective tax rate.  These studies estimated the size of the underground economy to be 18%-19% of total GDP. 

Finally, younger workers have the easiest escape from the system.  Social Security is an electoral priority.  If voters set new priorities, there is no payroll tax.  For example, if voters decide that controlling the deficit is more important than Social Security, Social Security gets fewer resources.