There are two situations where employers are not paying a true match of employee payroll taxes.
First, with the Affordable Health Care Act, the highly-compensated
employee pays the .9% Medicare Tax, whereas the employer does not match
it.
And second, the employer gets a US federal income tax deduction for the
payroll taxes it pays, whereas the employee does not. Thus, most of the
large C Corp employers are effectively getting a 35% discount on their
payroll taxes paid. And very profitable pass through entities are having their 39.6% discount on their payroll taxes paid being passed through to their owners or partners.
My recommendation is to have the employer, both the C Corp and the
pass-thru entity, to fairly pay a true economic match of employee payroll taxes, on a
long-term ongoing basis.
Thus, the .9% Medicare Tax should also be paid by the employer.
And also, all Social Security and Medicare payroll taxes paid by the
employer should be grossed up so that the after income tax benefit
effect is accounted for, and thus the present 35% discount that most C
Corps now receive is eliminated. Or perhaps an easier way here would be
to just disallow as a US federal income tax deduction the payroll taxes
paid by the C Corp or by the pass-thru entity (i.e. the US federal
income tax deduction now passed thru and thus effectively allowed at the
individual owner level).
All of the money raised here, which will be very substantial, should be used to reduce the US Debt.
Having the employer pay a true match of Social Security and Medicare
payroll taxes is a much better and fairer way to reduce the US Debt than
either reducing Social Security or Medicare benefits of the elderly.
Also, by employers paying a fair true match of payroll taxes, both
the Social Security Trust Fund and the Medicare Trust Fund, if there is
one, would get in substantially better financial shape over the long
run.
