Vail Daily column: Paycheck power outage
An American paycheck is a mighty thing. For six and a half billion of the world’s seven billion people it is an everyday fantasy.
American institutions want a piece, too. It is best for them if they can snag a chunk before workers recognize the money is theirs.
Controlling information about income is a key to controlling income. So a big slice of worker pay is disguised as something else — employer payroll taxes. The law says that bosses must pay Social Security and Medicare taxes just as workers do.
Economists call horse apples on that. The half bosses pay comes from money that workers would otherwise get. In most economists’ view, workers pay the whole thing.
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Why set up a 50/50 split of little truthiness? It is more efficient to take money from people if they don’t know.
Take a typical early-career two-earner family. It thinks it is making $75,000 annually. It is actually earning $100 grand. Some of that hidden $25,000 premium is buying services that workers could buy cheaper or of better quality themselves. The rest is going for things they might not buy at all.
It is not a conscious conspiracy against citizens, in this view. It’s just the gravitational force of power accumulating power. It is the result of a political effort to sell twice the taxes that people would otherwise support. The cost appears lower if half is pushed onto bosses.
This understanding is now petrified in law and custom, and largely unquestioned. Like nine-year old brides in Yemen.
Beyond the hidden income, upfront mandatory deductions are extracted, too. Federal and state income taxes, unemployment taxes, and more Social Security and Medicare, are all siphoned off immediately. Workers never handle it.
Government seldom thinks much about the cost-effectiveness of anything it does. Former senior officials of both parties say 99 percent of federal spending goes unexamined for financial effectiveness. One seldom cited theory is that government is so reliably efficient that scrutiny would be a waste of time and money. Or perhaps powerful actors don’t want it to happen.
Using employees of the Roaring Fork School district as an example, the typical working in Garfield County takes home roughly 56 percent of her paycheck. The other 44 percent is ground into pixie dust for the powerful.
Top administrators get well compensated jobs, personal prestige, and a special perk; authority without responsibility. After all, when things go wrong, they don’t pay, they may not even have to walk away
After paying taxes, health insurance and basic housing, an ordinary family might have control over just 30 percent of their income. That is stretched to cover the many health expenses that insurance does not cover, then food, utilities, retirement savings, cars, college, clothes and everything else.
There is a caring case that some people need others to manage their money for them. Reminders and perhaps even rules from government to save more money might help. Good information on complicated commitments such as health care, financial products and credit, and government services could help many people manage their money better, too.
However, the case is weak that Big Brother can do a better job managing family budgets than families do themselves. Through the well-intentioned Social Security and Medicare funds he has disabled the future to pay for the past.
Young people are not loony when they say these programs charge 100 percent commissions. Further, Colorado’s important pension fund, the Public Employee Retirement Association has only a rickety plan to make up the 40 cents of every dollar it has overpromised. PERA’s design puts younger members at a costly disadvantage.
Health insurance, too, charges more to the young than they will get back. The power they don’t have is crippling.
Paycheck policy that grants workers only a second bite of their own income starves people of financial literacy. As a whole it makes a less capable population. It also feeds political spending habits that have delivered outsized odds of national bankruptcy.
Paycheck deduction retirement plans and health care programs are museum quality examples of good intentions gone awry. Duct tape, hay wire and a pinch of salt tossed over the shoulder are weak fixes.
Though sometimes done well, but often done poorly, and never done perfectly, it may be that government can help citizens and citizens can help government. Each can do things for the other that neither can do for themselves.
Theoretically, government can encourage, advise and perhaps even compel stronger household finances. With more power over their paychecks, individuals and families can almost certainly control public finances much better than the public sector itself.
Where does it start? With that basic tool of progress: Doubt. Whatever it is, doubt the way it is done. Doubt the costs. Doubt the benefits. Doubt the results.
Look. Listen. Learn.
Revise. Resolve. Repeat.
Fuel it all with doubt.
Vince Emmer is a Gypsum financial analyst who runs Citizens Due Diligence in his off hours. Email him at vince.emmer@cdudilcom.
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