Policy 02: Eliminate payroll tax paid by employer.

Researched: 2026-07-22. Status: draft.

The plank

Policy 2. Eliminate payroll tax paid by employer.

Incentivize companies to hire Americans. Increase taxes on capital gains and income to cover lost revenue.

README.md and app/templates/index.html agree verbatim on this plank — no drift. (Unrelated repo note found while checking: Policy 4's title does drift — "Disintermediate healthcare and employment" in README vs "Separate healthcare and employment" in index.html. Fix in that plank's doc.)

Scope note: "payroll tax paid by employer" is read here as the employer half of FICA — 6.2% OASDI (Social Security, on wages up to the taxable maximum, $168,600 in 2024) plus 1.45% Medicare HI (uncapped), i.e. 7.65% of covered payroll under IRC §3111. Federal unemployment tax (FUTA, §3301, ~0.6% net on the first $7,000 of wages, roughly $6–8 billion/year) and state UI taxes are also employer-paid but are small and tied to a distinct benefit system; this doc treats them as out of scope unless noted.

The problem

The United States taxes the act of employing an American at 7.65% of payroll before the worker earns a dollar, and hides that tax from the worker.

• Size. Total federal payroll (social insurance) tax receipts were roughly $1.7 trillion in FY2024–FY2025 (CBO Monthly Budget Review, FY2025 summary, Nov 2025) — the second-largest federal revenue source after the individual income tax ($2.7 trillion, FY2025). Net OASDI payroll tax contributions were $1.29 trillion in 2024 (2025 Social Security Trustees Report); HI (Medicare Part A) payroll taxes supplied 88% of Part A revenue in 2024 (KFF, 2025), roughly $370 billion (back-of-envelope from the 2.9% uncapped HI rate scaled against the OASDI base; not a published line item — flag).
• The employer half of that is, back-of-envelope, $750–800 billion per year (2024): just under half of the $1.29T OASDI contributions (self-employed people pay both halves via SECA, so the employer-remitted share is slightly under 50%) plus about half of ~$370B in HI payroll tax (the 0.9% Additional Medicare Tax is employee-only). That is ~16% of all federal revenue and ~2.6% of 2024 GDP. No agency publishes an exact employer/employee split; this estimate is labeled as such.
• Who really pays it. The tax is remitted by employers but, per the mainstream incidence literature, largely borne by workers as lower wages. CBO's official distributional methodology allocates the employer share to employees "because employers appear to pass on their share of payroll taxes to employees by paying lower wages than they otherwise would" (CBO, The Distribution of Household Income series, most recently the 2022 edition, Jan 2026). Gruber (1997) found that when Chile's payroll tax rates fell ~25 percentage points after 1981, the savings passed fully into wages with no measurable employment effect.
• How it shows up in an ordinary life. A worker earning $60,000 (roughly the 2024 median full-time wage) generates $4,590/year in employer FICA that never appears on their pay stub. If incidence is full, that is ~$4,300/year of wage the worker never sees (back-of-envelope: wages could rise ~7.1% gross if the 7.65% wedge were removed and fully shifted — long-run, contested).
• The distortion. The tax applies only to employing a person, in the United States, as a W-2 employee. It does not apply to a robot, to software, to an offshore worker, or (at the firm level) to an independent contractor — contractor status shifts the full 15.3% onto the worker through SECA (IRC §1401). The status quo is, literally, a ~7.65% federal surcharge on choosing American employees over the alternatives.
• First-dollar and regressive. It hits from the first dollar of wages, and the OASDI portion stops at the cap ($168,600, 2024), so measured as a share of total compensation it falls hardest on low- and middle-wage employment.

Who profits from the status quo

Honesty first: there is no concentrated lobby that profits from the employer payroll tax itself the way Intuit profits from tax filing. The tax survives because it funds Social Security and Medicare through a structure both parties are afraid to touch, and because its employer half is invisible to the workers who (per the incidence evidence) actually pay it — a textbook fiscal illusion, deliberately designed. FDR: "With those taxes in there, no damn politician can ever scrap my social security program" (Luther Gulick memorandum, 1941, SSA History Archives).

The specific parties who profit from the status quo are the ones who have arranged not to pay it while their competitors do:

• Gig platforms. Uber, Lyft, DoorDash, and Instacart spent about $205 million passing California Proposition 22 (2020) — the most expensive ballot measure in state history (total spending >$225 million; Ballotpedia; California Law Review, 2021) — to keep drivers classified as independent contractors. Contractor classification relieves the platform of the 7.65% employer share (plus UI and other employment costs) and shifts it onto the worker via SECA. The employer payroll tax is a meaningful part of the cost gap they paid nine figures to preserve.
• Misclassifying employers generally. IRS's last comprehensive study (tax year 1984) found ~15% of employers misclassified 3.4 million workers; GAO extrapolated a $2.72 billion federal revenue loss for 2006 (GAO-09-717, 2009), and Treasury has estimated $3–4 billion/year lost to misclassification (cited in NELP, 2020). Employers save up to ~30% of payroll-linked costs by misclassifying (DPE/AFL-CIO fact sheet, 2024 — secondary).
• Offshoring and automation vendors, structurally: labor performed abroad and capital equipment bear no US payroll tax, so the tax is a standing subsidy to both relative to domestic hiring. No lobbying figure attaches to this — it is an incentive gradient, not a conspiracy, and this doc does not pretend otherwise.

The proposal, concretely

1. Repeal IRC §3111(a) and (b) — the employer OASDI and HI excise taxes — and the parallel railroad employer tax (§3221). Employee-side §3101 withholding is untouched; workers' earnings records, and therefore benefit calculations, are untouched (benefits are computed from covered earnings, not taxes remitted).
2. Hold the trust funds harmless by statute. Amend Social Security Act §201 (and the HI provisions of §1817) to appropriate general-revenue transfers equal to what §3111 would have raised. The mechanism exists and has been used: the 2011–2012 employee-side payroll tax holiday (P.L. 111-312, §601) reimbursed the trust funds dollar-for-dollar from the general fund, and SSA credited workers' earnings normally.
3. Decide the SECA parity question explicitly. Symmetry argues for halving SECA (§1401) so the self-employed aren't taxed 7.65 points above employees; that adds roughly $40–60 billion/year to the cost (estimate, weak evidence — SECA's revenue share is not separately published in the Trustees summary).
4. Replacement revenue, per the plank: raise §1(h) capital gains/dividend rates toward the revenue-maximizing range and raise §1 ordinary rates. The honest arithmetic (below) is that capital gains can supply only a small slice; most must come from ordinary income rates.
5. Design alternative worth scoring: phase out the employer share only on the first ~$25–50k of each worker's wages instead of full repeal. The employment evidence (Sweden, France) says effects concentrate among low-wage workers where wage floors prevent the tax from being shifted to wages; a capped exemption buys most of the employment effect at a fraction of the cost.

Evidence

• Sweden, 2007–09 (strongest for the plank). Sweden cut the employer payroll tax for workers under 26 from 31.4% to 15.5%. Saez, Schoefer & Seim (AER 109(5), 2019) found no change in young workers' net wages and a 2–3 percentage point rise in youth employment; windfall firms expanded employment, capital, and sales, and shared rents as broad wage increases. Direct evidence that employer-side cuts can raise employment when wages are rigid — and also that firms capture part of the windfall. Maps moderately to the US: Sweden's tax was 4x larger and its wage-setting more rigid.
• Chile, 1981 (strongest against). Gruber (J. Labor Econ. 15(3), 1997): payroll tax rates fell ~25 points; full shifting into wages, no employment effect. Supports "workers get raises" and undercuts "companies hire more."
• France, CICE, 2013–2018. A ~4–6% payroll tax credit on wages below 2.5x the minimum wage, costing ~€18 billion/year (2016). France Stratégie's official evaluation (2020) attributes roughly 100,000 jobs (OFCE upper bound ~160,000) — ≈€180,000 per job per year. Employer-side relief buys some employment, expensively, with effects concentrated in low-wage-intensive firms.
• US, HIRE Act (2010). Temporary employer-side FICA exemption for hiring the unemployed; take-up and evaluation evidence is thin (estimate, weak evidence).
• Incidence consensus. CBO (Distribution of Household Income series, 2026 edition for 2022 data) and JCT both allocate the employer share to workers; Summers (AER P&P 79(2), 1989) supplies the standard theory. Newer quasi-experimental work (Saez et al. 2019 above) shows shifting is far from complete over 5–8 year horizons, especially at wage floors.

Overall strength: moderate. Strong evidence workers bear the tax in the long run (which supports eliminating it as a hidden wage tax); genuinely mixed evidence on how many jobs elimination creates (which is the plank's stated rationale). The plank's honest pitch is "raise take-home pay and stop taxing American jobs," with employment gains concentrated among low-wage workers, not a jobs miracle.

Who wins, who loses

Transition costs: firms capture a windfall for the first several years (Sweden showed rent-sharing, not instant pass-through); the wage gains arrive gradually through normal raises and hiring competition, plausibly over 3–7 years (estimate, weak evidence). The statutory hold-harmless transfer (proposal step 2) fully compensates the trust funds if enacted and honored — that "if" is the policy's largest real risk, and no compensation mechanism exists for it other than political will.

Fiscal impact

All figures annual, steady-state, 2024 wage base, back-of-envelope unless tagged CBO/JCT.

• Gross cost: ~$750–800B/yr (employer FICA, derived from 2025 Trustees Reports as above).
• Automatic offsets: (1) If wages rise to absorb the cut, the raise is subject to income tax and employee FICA — the standard JCT/CBO income-and-payroll offset convention is roughly 25% of the static amount (convention, not a score of this proposal — flag). (2) Employer FICA is currently deductible; repeal raises business taxable income. Net replacement need: ~$550–650B/yr (estimate).
• What the plank's named payfors actually raise (CBO, Options for Reducing the Deficit: 2025–2034, Dec 2024):
• Raise long-term capital gains and dividend rates by 2pp: $103B over 10 years — ~$10B/yr.
• JCT's realization elasticity (−0.7) implies revenue from LTCG maxes out near a 28% top rate (Tax Foundation on JCT, 2023; CRS R41364, Gravelle). Newer estimates (Agersnap & Zidar, AER: Insights 2021: elasticity −0.3 to −0.5) push the revenue-max to 38–47%; CRS (R48562, 2025) bounds long-run elasticity at 0.29–0.45. Even at the optimistic end, total capital gains receipts are only ~$200–300B/yr in normal years (realizations were $1.2T in 2022 after a $2T+ peak in 2021; capital gains ~9% of individual income tax receipts pre-2008, ~14% in FY2021–22 — CBO, Projections of Realized Capital Gains, Feb 2023). Squeezing capital gains as hard as the evidence allows yields perhaps $30–80B/yr of new revenue — under 15% of the hole.
• Raise all seven ordinary income rates by 1pp: ~$1.2T over 2026–2035 — ~$120B/yr (CBO Dec 2024 via CRFB).
• Bottom line: covering ~$600B/yr requires roughly +4 to +5 percentage points on every individual income tax bracket plus a capital-gains increase to ~30%, or equivalent base-broadening. The plank's sentence "increase taxes on capital gains and income" is arithmetically possible only if "income" does almost all the work. This doc says so plainly; the plank text should probably be revised to match.
• Timing risk: OASDI combined trust funds are projected depleted in 2034 (81% of scheduled benefits then payable; SSA press release, June 18, 2025 — the June 2026 release holds the projection steady) and HI in 2033 (89% payable; 2025 Medicare Trustees Report). Removing half the dedicated revenue without an ironclad replacement moves these dates dramatically forward; with the hold-harmless transfer, they are unchanged by construction.

The opposition's best case

1. "Workers already bear it, so you're not creating jobs — you're doing an $800B shell game." (Gruber 1997; CBO's own incidence assumption.) Answer: Largely conceded on long-run incidence — and that is an argument for the swap, not against it: it converts a hidden, regressive, first-dollar wage tax into visible, progressive taxes. The employment claim should be scoped down to low-wage labor markets, where wage floors block shifting and the Swedish and French evidence shows real gains. The plank's first sentence overpromises; the honest version is "raise take-home pay, stop taxing jobs at the bottom."
2. "The replacement revenue is not there — capital gains cannot raise $600B." (JCT elasticity work; Gravelle/CRS; CBO options scores.) Answer: Conceded outright. Capital gains can supply well under 15% of the need. The plank must be understood — and probably rewritten — as principally an ordinary-income-rate increase (~+4–5pp across brackets). If that is politically unsellable, the fallback is the capped low-wage exemption in the proposal section, at perhaps a quarter of the cost.
3. "It destroys Social Security's contributory foundation." Nancy Altman (The Battle for Social Security, 2005; Social Security Works' 2020 opposition to the payroll tax deferral — secondary) and NASI-tradition scholars argue the earned-benefit, payroll-financed structure is why the program has survived 90 years; general-revenue dependence converts it into an annual appropriations fight, i.e., welfare. Answer: This is the strongest objection and it is partly conceded. Mitigations: only the employer half is replaced (workers keep visibly contributing); benefits remain tied to earnings records, which repeal doesn't touch; Medicare Parts B and D have been majority general-revenue-financed for decades without being "scrapped"; and P.L. 111-312 (2010) shows Congress can backfill the funds cleanly. But the risk that a future Congress "forgets" the transfer is real and cannot be engineered away.
4. "Timing: you'd do this while the trust funds are eight years from depletion and the deficit is $1.8T." (2025 Trustees Reports; CBO FY2025.) Answer: Conceded as a sequencing constraint — the replacement taxes must be enacted in the same bill, effective the same day, with the transfer automatic and permanent, or this plank should wait behind a solvency deal.
5. "Firms will pocket it." (Saez et al. 2019 found firms captured part of the Swedish windfall as profits and rents.) Answer: True in the short run; conceded. Competition erodes it over years, not quarters. The capped-exemption design and the fact that nonprofits/public employers pass savings through budgets, not shareholders, blunt but don't eliminate this.

Talking points

• One line: Stop taxing companies for the act of hiring Americans — the hidden 7.65% employer payroll tax comes out of your wages anyway, so end it, make the trust funds whole by law, and send the bill to capital gains and high incomes instead.
• Thirty seconds: Every W-2 job in America carries a 7.65% federal surcharge the worker never sees — about $780 billion a year, $4,600 on a $60,000 job. Economists across the spectrum, including CBO's own methodology, agree that money mostly comes out of workers' wages. Meanwhile robots, offshore workers, and "contractors" pay none of it. When Sweden cut its employer payroll tax for young workers, youth employment rose 2–3 points. Eliminate the employer half, credit the trust funds dollar-for-dollar by statute — Congress did exactly that in 2011–12 — and replace the revenue with higher rates on capital gains and top incomes.
• Two minutes: adds — the villain is structural, not corporate: the tax survives because it's invisible by design, and the people who profit are the ones who've engineered their way out of it, like the gig platforms that spent $205 million on Prop 22 to keep shifting the whole 15.3% onto their drivers. Honest costs: capital gains taxes can only cover a small slice — the realization data says maybe $30–80 billion a year — so most of the ~$600 billion net replacement means roughly 4–5 points on ordinary income tax rates, paid mostly by high earners. And the wage gains arrive over years, not overnight — in Sweden firms kept part of the windfall at first. What you get: a raise workers can finally see, a labor market that stops subsidizing automation and offshoring against American jobs, and Social Security funded by a visible, progressive tax instead of a hidden regressive one — with the earned-benefit earnings record untouched.

Open questions

1. Exact employer-share revenue. No published employer/employee split exists; ask SSA's Office of the Chief Actuary for the precise §3111 receipts line before citing $750–800B in print.
2. Incidence at current US margins. Would a US repeal behave like Chile (full wage shifting, no jobs) or Sweden (jobs, sticky wages)? An economist reviewer should be asked to referee this first — it decides whether the plank's headline is "raise wages" or "create jobs."
3. Net revenue score. Commission or find a JCT-convention score of repeal-plus-hold-harmless including the deduction and income-tax-recapture offsets; the ~25% offset here is a convention, not a score.
4. SECA treatment. Halve it (parity, +$40–60B cost) or keep it (a new 7.65pp penalty on self-employment)? Either answer changes the misclassification story.
5. Does the hold-harmless transfer hold politically? Study Medicare Part B/D general-revenue history and the 2011–12 transfers for evidence on whether general-revenue-funded social insurance actually gets cut more.
6. Would a capped exemption (first $25–50k of wages) capture most employment gains at ~25–35% of the cost? The French targeting evidence suggests yes; worth scoring as the fallback plank.
7. HI payroll dollar figure for 2024 — verify the ~$370B estimate against Medicare Trustees Table II.B1 (fetch blocked during this pass).

Sources

1. SSA, 2025 Annual Report of the Board of Trustees, OASDI (June 2025) — net payroll contributions $1.29T (2024), total income $1,418B, cost $1,485B, reserves $2.72T, 184M covered workers. https://www.ssa.gov/oact/tr/2025/tr2025.pdf — primary.
2. SSA press release, "Projection for Combined Trust Funds One Year Sooner than Last Year" (June 18, 2025) — combined OASDI depletion 2034. https://www.ssa.gov/news/en/press/releases/2025-06-18.html — primary. (81%-payable figure taken from the same report cycle; verify page cite — partially unverified.)
3. SSA press release, "Projection for Combined Trust Funds Remains Consistent with Prior Year" (June 9, 2026). https://www.ssa.gov/news/en/press/releases/2026-06-09.html — primary.
4. KFF, "FAQs on Medicare Financing and Trust Fund Solvency" (2025) — payroll taxes = 88% of Part A revenue (2024); HI surplus $28.7B (2024); HI depletion 2033, 89% payable. https://www.kff.org/medicare/faqs-on-medicare-financing-and-trust-fund-solvency/ — secondary (summarizing the primary 2025 Medicare Trustees Report).
5. CRFB, "Analysis of the 2025 Medicare Trustees' Report" (June 2025). https://www.crfb.org/papers/analysis-2025-medicare-trustees-report — secondary.
6. CBO, Monthly Budget Review: Summary for Fiscal Year 2025 (Nov 2025) — individual income tax $2.7T (up $239B); payroll taxes up $21B (1%); deficit $1.8T. https://www.cbo.gov/publication/61307 — primary.
7. CBO, The Distribution of Household Income, 2022 (Jan 2026) — employer payroll share allocated to workers via lower wages. https://www.cbo.gov/system/files/2026-01/61911-Household-Income-2022.pdf — primary.
8. Gruber, J., "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics 15(3), 1997, S72–S101 — full shifting to wages, no employment effect. https://www.nber.org/papers/w5053 — primary (academic).
9. Saez, E., B. Schoefer, D. Seim, "Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden," American Economic Review 109(5), 2019, 1717–63 — 31.4%→15.5% cut; +2–3pp youth employment; no net-wage change; rent sharing. https://www.aeaweb.org/articles?id=10.1257%2Faer.20171937 — primary (academic).
10. France Stratégie, Évaluation du Crédit d'impôt pour la compétitivité et l'emploi (Sept 2020) — ~100,000 jobs (OFCE ~160,000) for ~€18B/yr (2016). https://www.strategie-plan.gouv.fr/files/files/Publications/2020/CICE/fs-2020-rapport-cice2020-16septembre-final18h.pdf — primary (official evaluation).
11. CBO, Options for Reducing the Deficit: 2025 to 2034 (Dec 2024) — +2pp LTCG/dividends: $103B/10yr; +1pp all ordinary rates: ~$1.2T/10yr. https://www.cbo.gov/system/files/2024-12/60557-budget-options.pdf and option pages https://www.cbo.gov/budget-options/60940, https://www.cbo.gov/budget-options/60937 — primary.
12. CRFB, "CBO's Revenue Savings Options" (2024) — summary of the above. https://www.crfb.org/blogs/cbos-revenue-savings-options — secondary.
13. CBO, CBO's Projections of Realized Capital Gains (Feb 2023) — realizations >$2T (2021), $1.2T (2022); gains ≈14% of individual income tax receipts FY2021–22 vs ≈9% pre-2008. https://www.cbo.gov/system/files/2023-02/58914_capital_gains.pdf — primary.
14. Gravelle, J. (CRS), Capital Gains Tax Options: Behavioral Responses and Revenues, R41364 (updated) — JCT elasticity ≈ −0.7; revenue-max ≈28%. https://www.congress.gov/crs-product/R41364 — primary (CRS).
15. CRS, Boundaries on the Long-Run Realization Response, R48562 (2025) — long-run elasticity bounded 0.29–0.45. https://www.congress.gov/crs_external_products/R/PDF/R48562/R48562.2.pdf — primary (CRS).
16. Agersnap, O., and O. Zidar, "The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates," AER: Insights 3(4), 2021 — elasticity −0.3 to −0.5; revenue-max 38–47%. https://www.nber.org/system/files/working_papers/w27705/w27705.pdf — primary (academic).
17. Tax Foundation, "JCT Report Shows Capital Gains Are Sensitive to Taxation" (2023) — JCT elasticity/revenue-max summary. https://taxfoundation.org/blog/jct-report-shows-capital-gains-are-sensitive-to-taxation/ — secondary.
18. Ballotpedia, "California Proposition 22 (2020)" — proponent spending ≈$205M; total >$225M. https://ballotpedia.org/California_Proposition_22,_App-Based_Drivers_as_Contractors_and_Labor_Policies_Initiative_(2020) — secondary.
19. California Law Review Online, "The Aftermath of California's Proposition 22" (2021). https://www.californialawreview.org/online/the-aftermath-of-californias-proposition-22 — secondary.
20. GAO, Employee Misclassification, GAO-09-717 (2009) — 1984 IRS study (15% of employers, 3.4M workers, $1.6B 1984 loss); $2.72B extrapolated for 2006. https://www.gao.gov/assets/a293684.html — primary.
21. NELP, "Independent Contractor Misclassification Imposes Huge Costs" (Oct 2020) — Treasury $3–4B/yr estimate. https://www.nelp.org/insights-research/independent-contractor-misclassification-imposes-huge-costs-workers-federal-state-treasuries-update-october-2020/ — secondary.
22. SSA History Archives, Luther Gulick memorandum on FDR (1941) — "no damn politician" quote. https://www.ssa.gov/history/Gulick.html — primary (link pattern standard; not re-fetched this pass — unverified link, verified quote provenance).
23. Summers, L., "Some Simple Economics of Mandated Benefits," AER Papers & Proceedings 79(2), 1989 — incidence framework. — primary (academic; no free link).
24. Altman, N., The Battle for Social Security: From FDR's Vision to Bush's Gamble (Wiley, 2005); Social Security Works statements opposing 2020 payroll-tax deferral — contributory-financing objection. — secondary (2020 statements not re-fetched this pass — unverified).
25. P.L. 111-312, §601 (2010) — Temporary Employee Payroll Tax Cut with general-fund reimbursement to the trust funds — statutory precedent. https://www.congress.gov/bill/111th-congress/house-bill/4853 — primary.
26. Tax Foundation, "Sources of Personal Income, Tax Year 2022" (2026) — investment income $1.8T (2022) vs $2.6T (2021). https://taxfoundation.org/data/all/federal/personal-income-tax-returns-data-2026/ — secondary.

PRA's feelings 2026-07-23

This policy is wonky and un-inspiring. It's easy for people opposing the movenment to mischaracterize it. The context - that Social Security is going bankrupt - is key. Social security needs to be conceptualized as negotiation between the working poor, the rich, corporations, and the retired. Maybe there is a better way to position this, but any solution likely needs to be structure so that all parties are winning or at least neutral.

Next Research Steps:

• Research the current social security conversation. Return something insightful. How should the conversation be understood?
• Create alternate thread of research: Are there bigger inefficiency with regards to tax policy, that the organization is more likely to make progress on?