RUSH: Okay. Let me give you a little hint. I want you to think about something. Imagine tax reform, a tax reform plan that eliminates FICA, that eliminates the payroll tax, which is the primary funding mechanism for Social Security. Imagine a tax reform plan that does away with that. That is a 12.6% tax elimination from everybody. Everybody pays it, even people that don’t pay income tax pay payroll tax.
RUSH: White House is exploring new directions on tax reform. And one of the interesting things I ran across, it wasn’t really obscure, but it didn’t stand out. It wasn’t highlighted or heralded anywhere else. I found it actually in the AP feed that there is a possibility the Trump White House is considering using tax reform as an opportunity to get in there and do something about entitlements.
Now, if you go back to the campaign, Trump made a big deal now and then out of the necessity of reforming our entitlements, that they’re out of control, many of them are redundant, they’re taking up way too much of the budget, and somebody needs to go in there and do an analysis and trim them down and fix them. Otherwise serious budget reform is gonna be hard to do, but nobody has ever been able to come up with a way to do it because entitlement reform requires somebody reforming Social Security, and whenever anybody suggests doing that, they’re cooked. They’re done.
Social Security, as you know, is the third rail of American politics, meaning if you step on it you die. If you touch it, you get electrocuted, and that’s it. So there are very few people who even talk about, as candidates, talk about Social Security, other than to say it’s necessary.
Remember when George W. Bush wanted to privatize some of it, remember what happened? It would have made all the sense in the world to do it. It would have been one of the greatest, in terms of fiscal responsibility, privatizing. That’s actually the wrong term, privatizing. All the policy was, was allowing Social Security recipients an opportunity to invest a portion of their money so that it could grow larger than Social Security does.
But it was immediately dead because the Democrats came along and said, “Well, this is nothing more than a payback to Wall Street! Do you really want to turn over your Social Security to Goldman Sachs?” And it was dead. Even though Goldman Sachs has it already anyway and is running with it every day and the rest of the country as well.
But that’s all it took to kill it. “You want to let Wall Street handle your Social Security? And what happens when they lose it all?” And if it was only like to start with 5%, it was nothing. It was just a starter program to wean people off the government and let them invest that portion of Social Security on their own with the hopes of growing it much faster than it grows government. Because dirty little secret is it doesn’t grow; it’s broke.
But now Trump tax reform is devising a plan — the Democrats will call it a scheme — to tackle it head on. Here’s the upshot of it. And it’s not the only aspect of tax reform here that’s been proposed and is being discussed. The Hill.com here even has a story. Not on the area I’m gonna get to in a second, but they write this.
“The White House is signaling an interest in moving the tax-reform debate in a different direction. A House tax reform blueprint, released last year as part of Speaker Paul Ryan’s (R-Wis.) ‘Better Way’ agenda, had long been viewed as the starting point for tax reform. During the campaign, President Trump’s tax plan was revised to more closely resemble it.
“But the Trump administration is now drafting a new proposal, with officials considering a range of policy options beyond what Republicans in Congress have put forward. … A White House spokesperson said Trump is getting feedback from stakeholders ‘to help develop a plan that will provide significant middle class tax relief and make American businesses more competitive.'”
Now, the Washington Post is saying that what this means is that the White House was looking at a VAT tax, a value-added tax, which is a sales tax, at every level, every sale, from beginning to wholesale to retail, and a carbon tax. Now, remember when the carbon tax was leaked weeks ago as being a central portion of the Trump tax reform plan, there was an outcry because a carbon tax is a Democrat idea. Well, a carbon tax is an establishment idea.
A carbon tax taxes everything. Everything’s carbon. Your body is carbon. Everything is carbon. Monoxide is carbon. Carbon is carbon. Oil is carbon. Gasoline is carbon. Everything is carbon. Can’t have life without carbon. Carbon tax, tax everything. The left likes it because they position it as a means of saving the planet.
The theory is that by taxing the use of energy, people will use less energy, and using less energy will save the planet. It will also destroy economies. The Trump administration jumped up and denied that they were ever contemplating a carbon tax and that they are not contemplating a carbon tax. That was some weeks ago.
Now it’s back. The Washington Post is saying that Trump’s tax plan, which differs from Ryan’s, is back to including a carbon tax and a value-added tax. The AP says, nope, there is no carbon tax. Trump administration’s pushing back, say that a VAT and carbon tax are not under consideration. What is under consideration is eliminating the Social Security tax, FICA, 12.6%.
Theoretically the employee pays 6% of it, the employer pays 6%. In truth the employee pays all of it. And if necessary, I will explain how that is. The employer doesn’t pay a dime into Social Security. The employer makes the payment, but the employee is paying 100 percent of that 12%. In the real world, the employer’s not matching a damn thing. You are paying all of it. But if you eliminate it, you’ve just eliminated the funding mechanism of Soc. Security.
So what do you replace that with? You need a new tax if you’re gonna fund — And if you remove FICA, if you get rid of the payroll tax, you are then eliminating Social Security as a donation or contribution program and converting it to a straight welfare program. Yes. This is quite interesting.
Now, here’s the thing. If you eliminate FICA — let me give you some numbers — although $60,000 a year, if you make 60 grand, eliminating FICA will give you an additional $3,500 in income, $3,500 dollar per year that you do not pay in taxes. Now, what I’ve seen so far, there is no plan to cut the personal income tax rates, just eliminate FICA, because it also requires the reforming of Social Security. But in so doing, it would convert Social Security to a straight welfare plan as opposed to what it is now, which is — well, that’s kind of what it is, but in theory it is a contribution program.
RUSH: Here’s how the AP reports on the plan. The theory here is that Obamacare gets repealed and replaced, so there is an entitlement done away with or done away with and replaced with something. That’s number one. Remember Trump was big on entitlement reform during the campaign. And this is a back door way of getting into Social Security, by eliminating FICA, which eliminates the funding mechanism.
That would end the contribution-based funding system for Social Security and some of Medicare, because that’s what FICA deduction is. The payroll tax is how Social Security is funded. Now, keep in mind that Social Security, all of this rigmarole about the trust fund and a lockbox and all this, Social Security long ago passed that point where what you get back is what you paid in. But it still stands as the design, and that’s what is meant by a contribution-based funding system. It means it isn’t welfare, because it’s funded with your money. They deduct it from you.
Oh. Let me step back and explain this. For those of you that have been here for a while, please indulge me while I go through this. It’s not an insignificant point. It is a great example of how you as a taxpayer are completely misled about your taxes and how much you pay and what it funds. Everybody thinks that on Social Security, the employer pays half, and you pay half, that whatever the tax is, and it’s 12.6% right now, and then some of your salary, you know, until you reach $138,000 a year you have to pay on every dollar you make, and that floor keeps rising.
But the point is most people think that they pay 6% of their earnings and the employer, the good guy that he is, matches it, it’s a beautiful thing. And then the whole Social Security contribution is handled. In truth, you are paying all of it. The employer isn’t paying a dime. He’s making the payment for you, but you’re paying it.
Here’s how it works. Let’s say that you go to work at the Acme Widget company, and the Acme Widget company agrees to pay you $75,000 a year. That’s your salary. But on top of that, they have to pay your health care and your Social Security and whatever else, whatever other benefits there are. So in truth — I’m gonna make up numbers here for the sake of discussion — in truth it costs the employer $90,000 to pay you $75,000 take home. You just don’t see $15,000 of it. You never touch it, it never comes to you, and you never have the use of it, but it’s what it costs to hire you. Therefore, the employer is paying everything — well, you are. You just don’t see it. The employer’s not matching diddly-squat.
They position it this way to make you feel like you’re not paying the full 12%, but you are. If you’re paid 75 grand a year and it costs $90,000 to hire you, then you’re actually being paid $90,000. You just don’t see $15,000 of it, whatever. And I’m making up the additional 15. It could be five or 10, depending on what the benefits are and how much your health care costs the employer.
But the bottom line is every dime of Social Security is coming out of what the employer is paying you. Okay. And it’s important to understand this, because it’s another example of how — it’s not an out-and-out lie. It’s just a misrepresentation to make you not realize how high the Social Security tax is. I mean, if you’re running around thinking it’s 12 — your Social Security tax rate might be as high as your marginal tax rate is.
So the plan would get rid of that, and that would mean for somebody making $60,000 a year, a tax cut of 3,000, $3,500. But now Social Security doesn’t have a funding mechanism. Now, with this idea in structure, that it is a contribution-based system, it means your money pays for it. If you eliminate that, you’re not eliminating Social Security, by the way. Let me be very clear. They’re not eliminating it. They’re just gonna totally restructure it.
And once they do that, it becomes a full-fledged welfare program, as opposed to a contribution based program. And whatever you get in terms of Social Security will no longer be based on what your contributions are because there aren’t going to be any. Your FICA has been cut. So on what basis will you collect Social Security, and who will be able to collect it? And how is it paid for?
Well, the that’s where the alternative tax plans come in, such as a VAT tax is one of the things that’s been proposed, and maybe a border tax, a tariff, but the Trump administration continues to insist that a carbon tax is not part of this. Now, this plan was proposed by a Republican lobbyist with close ties to the Trump administration. And it would revise or transform Brady — Kevin Brady, the chairman of the Ways and Means Committee — would revise, transform his plan on imports into something closer to a VAT tax by eliminating the deduction of labor expenses.
This would bring it in line with World Trade Organization rules and generate an additional $12 trillion over 10 years, according to budget estimates. And then those additional revenues could then enable the end of the 12.4% payroll tax, which is split evenly between employers and employees — which it isn’t — that funds Social Security while keeping the health insurance payroll tax, and the Medicare tax would not be touched. And the Medicare tax, what is it now, three, three and a half, four percent.
So, as I say, if you earn 60 grand, it gives you actually almost 4,000, $3,700 additional every year by not paying the payroll tax. And can you imagine that being ballyhooed on the campaign trail? By the way, this plan does not include a reduction in income tax rates, folks. This is the way they get around that. There is, in this tax plan, a reduction in the corporate tax, but there is no reduction in the marginal tax rates on income that are in place now.
Now, one of the things that has to be considered here, ’cause on the surface it sounds, “Hey, man, that would be great. We get rid of the FICA tax. That means we get rid of Social Security.” No, you’re not getting rid of it, you’re just changing the way it’s funded. And in a contribution-based plan you automatically have limits on payouts. For example. The old saw that you get back what you donate, what you contribute, your Social Security every month is based on how much you paid, right? I mean, that’s the theory.
We’re long past any of this being relevant, but that’s the theory is. The structural theory is that Social Security payments are rooted to and based on what the individual’s contributions have been or the deductions have been. What if that’s gone? Then how do you base the payouts? How do you determine what a Social Security recipient gets? And, furthermore, how do you determine who is a Social Security recipient and who isn’t?
If you eliminate the funding of the program from donations and contributions by the taxpayer and it becomes a straight welfare program, and you’ve got the taxes from other activities such as a VAT tax and other things that now create the fund that pays Social Security, on what basis is it calculated? Now, I’m sure there’s a plan, I’m sure there’s a formula. This story does not go into great detail on that. But there is at least, in theory and on paper, there’s a limit to what Social Security payouts can be, which is based on how much you have paid over the years in terms of your FICA tax.
You cannot collect more than what you paid, theoretically. I mean, we’re long past that, but at least it forms some kind of a foundation. If you eliminate that and it’s just a come one, come all welfare program, then how do you qualify? And who qualifies? And what’s the monthly payout? Are current recipients grandfathered at whatever their current rate would be until they pass away and then for Millennials and others who are not quite there yet a new formula is devised? I’m sure that’s all part of the plan here.
And I’m wondering how it’s gonna go over, depending on how it is sold, how it’s presented. How many people would prefer a reduction in their income tax rate, leave FICA alone, versus how many people, “Man, you get rid of FICA, you get rid of that whole deduction? Bring it on, dude, I’m all in.” Well, then you better be clear in understanding, ’cause you’re gonna expect when you hit whatever retirement age, that you want to start collecting, quote, unquote, Social Security, you better be determining how much that’s gonna be and how you’re gonna get it and on what basis you’re gonna get whatever it is.
As I say, there’s still a lot to uncover in this but I hadn’t seen anything about this. Had you? I didn’t see anything about this ’til over the weekend when I was digging deep just in straight news feeds.
RUSH: So I just got an email, “Rush, what do the Democrats think about this FICA idea?” I don’t know, folks. It’s relatively new. I can easily predict what they’re gonna say about it. They’re gonna oppose it like you can’t believe and claim that it’s a backdoor way on Trump and the Republicans’ part to cut Social Security benefits. That’s how they’re gonna oppose it.
Now look, folks, don’t be like a bunch of frogs in a hot skillet. Don’t go jumping around out there on this tax reform business. There are three elements here. You got the House, you got the Senate, and you got the White House. And this is the White House’s plan supposedly to eliminate the FICA tax and replace the money with a VAT tax and create a new entitlement. Well, not a new entitlement, but convert welfare — sorry — convert Social Security from a contribution based plan to a straight welfare program.
That’s just one idea. It’s nowhere near being done here. It’s just of all the tax reform proposals that I’ve heard I didn’t hear about this one until this weekend. I don’t know how old the news is, how long they’ve been bandying this about, but it’s not in the Ryan plan, for example. If the Senate has, you know, their own version of a tax reform plan, it’s not in that one. So this has miles to go before it ever becomes a reality.
And I think it’s a real long shot because the same old thing is gonna apply. You touch Social Security at your own peril. What they’re relying on here is Trump during the campaign talked about entitlement reform, and this definitely would be it. This would come after they replace, eliminate Obamacare and replace it, if they do, with anything. So that would be one entitlement zapped and then here comes something that Trump does that nobody said could ever be done, and that is reforming Social Security.
The Democrats are gonna scream bloody murder over this by claiming it’s a disguised way of cutting benefits. I mean, that’s part of the Democrat campaign every day. Every year they tell senior citizens, “The Republicans are gonna kick you out of your house. They’re gonna kick you out of your condo. They’re gonna kick you off your Stairmaster. They’re gonna kick you out of everything and take away your Social Security, and you’re gonna die in the street!’ They’ve been saying this for as long as I’ve been alive. So they’ll say it again if this plan ever comes up. So it’s way, way, way down the road.
I just find it fascinating that it is being considered and pondered. But I do want to remind you of something. I’m sure most people have forgotten this. Do you remember the Obama payroll tax holiday? The reason I bring this up is because this plan, if it ever does get anywhere near the serious discussion area, the media is — because, remember, the media leads, the Democrats follow. The media is gonna raise holy hell over this, accusing Trump and the Republicans of cutting benefits and eliminating Social Security.
I can just see the headlines now. But Obama gave us all a payroll tax holiday. It was in December of 2010. Obama traded Congress a two-year extension on the Bush-era tax cuts for a one-year two percentage point payroll tax holiday and additional unemployment benefits. Now I’m sure it’s starting to come back. Obama traded Congress a two-year extension of the Bush tax cuts for a one-year, two percentage point payroll tax holiday, and there were some additional unemployment benefits.
The temporary employee payroll tax cut reduced the employee portion of the Social Security payroll tax from 6.2 to 4.2 percent. See, that right there proves that you are paying it all. Because note, they didn’t give you the reduction. They gave it to the employer, ’cause the employer’s paying it all anyway. Who are you? It’s your money; he’s paying. So what happened was — and all we heard from the media after this Obama payroll tax holiday, oh, how wonderful it was. And how many families it saved.
My point is that a temporary 2% reduction in the payroll tax was heralded and just promoted and it was just the greatest thing in the world when Obama did it. And if eliminating it comes along under Trump, I’m just warning you. So it’s got a long road to go.
RUSH: This is Jim in Cuyahoga Falls, Ohio. Do you know who’s from Cuyahoga Falls? Tell ’em, Jim. Who’s from Cuyahoga Falls?
CALLER: I don’t know. Who you talking about? Somebody that’s from Cuyahoga Falls?
RUSH: Cuyahoga Falls, besides you, besides you, yes, somebody from Cuyahoga Falls.
CALLER: I don’t know.
RUSH: Try Chrissie Hynde of The Pretenders.
CALLER: Yes, yes. We’re the same age. We grew up in Akron at the same time.
RUSH: Or nearby, anyway. She sings about it, nevertheless, in My City Was Gone. Anyway, what’s happening, Jim? I didn’t mean to interrupt your train of thought out there.
CALLER: That’s okay. I just want to say I love that idea of eliminating the FICA tax. And I think it would be a big hit with Millennials. I think that if you replaced it with something, say, an employer-employee contribution of say 5% each into something similar to a 401(k) so that it couldn’t be touched and it would create vast amounts of wealth that Social Security just —
RUSH: No, no, no. That’s not the point. The plan is to create a new welfare program that’s called Social Security that is paid for with a brand-new sales tax called — what are you guys laughing at in there? Well, I may be being technical, but they’re laughing at me, Jim, because I said the plan is to create a new welfare program called Social Security. But that’s what it is. Right now Social Security is technically not welfare because the contributions — they’re not contributions. They’re extortion payments. I mean, it’s deducted from your paycheck whether you want to pay it or not, so it’s not a contribution. It’s mandated by law that you deduct it from your paycheck, you never see it. Anyway, theoretically it’s a contribution that you are making to your own retirement. It’s not welfare. Well, if they eliminate that contribution by eliminating the FICA and payroll tax and they have to replace Social Security with something, it’s gonna become a new welfare program.
CALLER: I agree, but you’d have to grandfather in say people above age 40, but it I think the Millennials would like to see that money put somewhere else other than into a — Social Security pay a couple percent.
RUSH: Wait. Wait. I’m not making myself clear. There isn’t gonna be a replacement that is based on investments and 401(k). It’s a tax cut. It’s a way of cutting taxes without cutting the income tax. You eliminate FICA, you’re giving people essentially a 12% tax cut. And that’s it. That’s it. Then if you want to fund a 401(k) with it you do it, but there is no replacement for it. It’s gone. Social Security as a donation, contribution program, gone. It has to be replaced —
CALLER: I would still be for it. I would still be for it because the system is broken, and anything that would lead to changing it I would be for.
RUSH: What do you think really needs to be done with Social Security?
CALLER: I think it needs to be phased out. I think we’ve learned through 401(k)s that vast amounts of wealth can be created for people to retire on their own terms instead of on the government’s terms, and I think Social Security is outdated.
RUSH: That’s because you probably would be adept and skilled at investing and watching your money. But what happens to the poor sap, let’s say that we create an investment program. Let’s say that 12% deducted from your paycheck, let’s say that 12% goes to a private investment account in your name that’s run by Wall Street traders, okay? And then some people choose to invest in Apple and some choose to invest in Google, and some choose to invest in Facebook and live televised murders, and what happens if they lose everything in this investment account. whereas you go gangbusters? what happens to the people whose investment accounts end up shrinking because of poor investments, bad advice, or typical Wall Street theft? What happens to them? They’re just out, right?
CALLER: I think you’ve seen with 401(k)s, though, that they’ve been pretty consistent. I don’t know of too many people that have lost out with their 401(k). Almost everyone I know has —
RUSH: Let me ask you this. I’m dead serious with. I’m not trying to be provocative, and I’m not trying to be challenging, don’t misread my tone. Do you know anybody who has retired on their 401(k) and is enjoying life?
CALLER: No, not personally.
RUSH: Well, I don’t, either. Isn’t that purpose of a 401(k) to put money away that you can’t touch until retirement? If you touch it prematurely, there’s a penalty to pay, as in a tax. The 401(k) started — when was the first 401(k)? Seventies? So we’re getting to the point now where some people should be able to retire on their 401(k)s. I just don’t know anybody who has.
CALLER: Well, I think we’re the first generation that’s starting to see that, and we’ve learned a lot through the years, and I think the next generation is gonna use it more effectively than we did, because there’s a learning curve. You know, it was a good and a new idea, and I think a lot of us didn’t know what we had and how it could be used.
RUSH: Let’s say that your 401(k) is all you’ve got and your retirement age comes up, and it’s September of 2008, and here comes the so-called Great Recession because of the subprime mortgage crisis, and your 401(k) becomes practically worthless.
CALLER: Well, I think what most advisers would tell you, as you approach your retirement age, within a couple of years when you’re gonna retire you really should move your investments into more conservative areas —
CALLER: — so that you don’t run that risk.
RUSH: Right. See, listen to you. You are, sadly, in a — I really wish it weren’t the case — a minority of people who understand. You are not depending on a government program or anybody else for your retirement. To the extent that you can, you are trying to grow it and maximize it as much as you can. But, sadly, do you know how many robots there are that vote Democrat? I mean, literally mind-numbed sponges who have bought hook, line, and sinker every promise the Democrat Party has made since they have been alive, and they fully expect that there’s gonna be retirement for them.
Some of them are getting wise, but the vast majority of people aren’t gonna want to manage this retirement fund the way you do, the way you’re talking about, talking to the advisor to transfer the funds into less risky areas, become more conservative, make sure the no loads don’t get loaded too soon, you’ve just lost over half the country here. They don’t want to have to do anything, because the Democrat Party has assured them that they won’t have to do anything.
You and I can come up with any retirement program for everybody that is much better than Social Security. Would run rings around it. Which illustrates what Social Security really is. Remember who created it. Social Security was invented by — dadelut dadelut dadelut dadelut — FDR. And the purpose FDR had in mind was creating a program that would keep Democrats in power in perpetuity by making them, having them seen as the providers for the American people.
I don’t know if FDR called it retirement, I don’t know how soon they started calling it that, but this was not a plan, they’ll tell you now, that was devised to ever handle your full retirement. It was never intended for that. That’s right. It wasn’t. Supplemental this, supplemental that. It was designed to attach you permanently to the Democrat Party as a voter. And on that score, it worked, it worked wonders. Only in the last 10 to 15 years has that glue become less sticky. Democrats are having trouble with it. Which is why all this talk about reforming it gets a serious listen to.
RUSH: By the way, folks, this AP story on the Trump tax plan — the eliminating the FICA and creating a new entitlement or new welfare plan called Social Security. That story was actually released on April 10th. It’s just the media was occupied with Dr. Dao being dragged off that airline for a week and it kept under the radar out there. That’s why I only saw it slithering to the surface of news feeds over the weekend. You know, folks, online thieves, they are quick to take advantage of new opportunities they find on the Web. Like the IRS, newer online data tool for tax returns to be uploaded as part of the application process for federal student aid.
Do you even know about this? The IRS has created a new online tool for tax returns to be uploaded. It’s part of the application process for federal student aid. Now, smart hackers quickly accessed this new online function (chuckling) and they stole all kinds of data. I mean, Obama’s out there claiming that he hacked the North Koreans. Meanwhile, they couldn’t even build a health care website! Now they create this new upload process for student aid tax forms and they’ve already been hacked.
All kinds of data has been stolen and fake tax returns were filed to get other people’s refunds. The first estimates from the IRS suggest more than 8,000 fraudulent returns were issued under this new program and the victims are only starting to hear about it now. The tool has since been taken off line but only after $30 million in bogus refunds were sent, and it’s all part of the federal student aid program. And of course federal [blank] aid, federal student aid, federal old folks’ aid, federal one-armed amputees in the Bronx aid — whenever there’s federal aid anywhere — hackers zoom in for it because they know it’s gonna be loaded with applicants.