Flat payroll tax — structural floor

Social insurance hides inside premiums and narrow payroll rules. Today the federal social stack draws from three sources, two of which most workers never see: FICA (capped at $168,600), the employer health premium (averaging $17,000 per covered worker, suppressing the wage that would otherwise be paid), and state Medicaid match. Households see one payroll line and one premium line. They never see the larger employer share of either. The result is a system that costs more than peer democracies pay for universal coverage and delivers worse outcomes by every measurable population-health metric.

The architecture is regressive in two structural ways. The FICA cap means a janitor earning $48,000 pays FICA on every dollar; a hedge-fund partner earning $50 million pays it on the first $168,600 and nothing on the remaining $49.83 million. And the employer premium tracks employment rather than income — a $200,000 engineer and a $34,000 cleaner with the same coverage pay roughly the same dollar burden, leaving a far heavier share on the cleaner's compensation. The premium is denied entirely to gig workers, contractors, and employees of small firms that cannot afford coverage.

Beyond the regressive incidence, the form of the payment determines whether tax is collected at all. Wages enter the FICA base. Bonuses partially. Equity vesting, exercised options, perks, deferred compensation, partnership distributions, platform income, and contractor service income flow around it. The reliable contributors are wage earners; the unreliable contributors are everyone with discretion over how their compensation is delivered.

One levy on the comprehensive compensation base, replacing FICA + Medicare payroll + the employer health premium with a single instrument. Substance governs treatment: every form of compensation enters the base — wages, bonuses, vested equity and exercised options, fringe benefits, deferred compensation, active-participant partnership distributions, platform income, contractor service income — on the same comprehensive withholding base used for the income-tax instruments.

Source-collected. The employer or platform operator remits; the worker sees a single paystub line. Reconciliation against AGI flows through the existing income-tax filing infrastructure with the employee share showing as an above-the-line deduction.

Governor-bounded. The Debt Sunset macrogovernor adjusts payroll tax within a statutory corridor in 0.25-percentage-point steps coupled 1:1 with the top income rate. The corridor is set in statute; the governor's actions are automatic. Phased deployment rolls the levy out in employer tranches, paced to the parallel Distributed Healthcare phase-in.

All employers and all employees, on all compensation. The instrument is structurally invisible to typical wage earners — it replaces FICA + employer health premium with one line, and net paycheck is roughly comparable to today (slightly lower for many; modestly higher for some, depending on filing status and employer health-coverage level). For workers without employer health coverage today, payroll tax is the entry point into universal Distributed Healthcare without a separate premium bill.

It bites the high-compensation tail. The hedge-fund partner whose $50M is structured as carried interest, vested equity, partnership allocations, and deferred consideration today pays FICA on $168,600 and zero on the rest. Under payroll tax the same partner pays the levy on the full $50M. The carried-interest and partnership-allocation conversions close through the wage-to-capital and pass-through-platform subpages, which funnel recharacterized income back into the payroll tax base.

It also bites platform and contractor flows that today escape payroll entirely. The platform operator withholds at source; the worker enters universal Distributed Healthcare. Self-employed filers (no payroll employer) pay the full 28.0% as a single combined remittance — no rate discount, no base exclusion. US citizens resident abroad with no US-source income pay no payroll tax; the levy applies to US-employer payroll and US-source self-employment income only.

Workers with employer coverage today get the largest direct benefit. The employer premium burden (averaging $17,000 per covered worker, rising) is replaced by the 17.5% employer share. For most employers, total compensation cost falls or stays flat once premium replacement is netted in. Workers enter Distributed Healthcare on Day 1, with comprehensive coverage across medical, dental, vision, hearing, mental health, and long-term care; cost-sharing structure within the floor is calibrated by AHQB.

Workers without employer coverage today get the largest indirect benefit. The ~27 million uninsured and ~80 million with significant coverage gaps enter universal coverage on the same footing as everyone else: no application, no means test, no hunt for an employer to provide it.

Net paycheck for typical earners is comparable to or slightly lower than today: the 10.5% employee share replaces 7.65% employee FICA plus out-of-pocket premium and copay costs. Social Security accrues on the full comprehensive base. Skills Wallet accrues $1,000/year.

Self-employed filers, gig workers, and contractors gain access that today is functionally unavailable. The full 28.0% they remit is roughly the combined economic equivalent of SE tax + uncovered out-of-pocket today — but with the coverage gap closed.

$4.86T at maturity (per landing-page summary).

payroll tax is the single largest revenue stream in Engine 1. Its load comes from convergence — combining today's FICA, the employer health premium, the state Medicaid match, and the high-compensation tail that escaped all three — onto one base, at one rate, source-collected.

Three contributing forces compose the $4.86T. First, FICA-base broadening: removing the wage cap produces approximately $3T more annually than capped FICA at identical rates (per DNA Chapter 6), with the bulk coming from the top fraction of the top 1%. Second, the comprehensive base captures equity, options, perks, deferred comp, partnership distributions, platform income, and service income that today flow around payroll — meaningful at the top, small at the median where wage compensation already enters FICA. Third, the 17.5% employer share replaces the average $17,000 employer premium — roughly a wash for employers covering their workforce, savings in high-cost markets, and a genuine new federal obligation for firms not currently providing coverage. The latter group is what makes the policy progressive: firms that today externalize healthcare onto the broader system finally pay for the social cost they impose.

Internal allocation: there is none. Payroll-tax receipts flow undifferentiated to the General Fund — no destination silos for SS, healthcare, or any other program. SS 2.0 is funded during the 2031–2036 transition by the existing SS Trust drawing down, and after Trust dissolution becomes a permanent General Fund commitment calibrated to the Accord's bend-point structure (90/28/22/10/5). The architecture deliberately reduces the trust count: only two trusts remain ring-fenced (Climate Adaptation Trust and Financial Stability Reserve).

See tax ladder · fiscal scoring

FICA-cap arbitrage

The wage cap dissolves. There is no longer a below-the-cap base to gain from routing compensation around.

Equity-grant exclusion

payroll tax applies to vested equity, exercised options, and stock-based compensation on the comprehensive withholding base. Substance-over-form rules close conversion into capital gain or partnership allocation.

Contractor classification

An economic-substance test governs whether a relationship is genuine independent contracting or misclassified employment. Misclassified relationships flow through payroll tax as W-2 employment; genuine contractors pay the full self-employment levy.

Employer-premium gaming

Replacing the premium with an uncapped levy at one rate eliminates plan-design and network-narrowing as cost-shifting tools. Plan-design competition continues — but in the elective supplemental layer, not the universal floor.

Pass-through entity routing

payroll tax applies at every point of capture. Compensation paid through a pass-through entity enters the payroll tax base on the work substance, not the entity's allocation labels. Owners who wish to avoid layered taxation simplify their entity structure; the architecture deliberately removes the incentive to create complex pass-throughs whose only purpose is rate or category arbitrage.

The architecture closes payroll-tax avoidance at the level of legal form. Detail rules for each closure live in the linked subpages.

Distributed Healthcare (Engine 2)

The employer share of the flat payroll tax replaces the employer-side health premium that today funds private insurance. Payroll-tax receipts flow undifferentiated to the General Fund — Distributed Healthcare is a GF commitment, not a payroll-tax silo. The Years 1–5 corporate-rate transition (30% → 28.0%) provides ~$310B of additional cushion to bridge the rollout.

Social Security 2.0 (Engine 3)

No payroll-tax carve-out for SS. The existing SS Trust draws down on the CBO LTBO 2025 schedule (combined OASDI exhaustion 2034); the Accord does not change that schedule and draws from the Trust by the same amount on the same timeline. The Accord prevents the ~23% post-exhaustion benefit cut FICA-alone would force — the General Fund fills the gap so retirees see no reduction. After exhaustion the Trust is permanently closed and SS 2.0 becomes a permanent General Fund commitment — calibrated to the bend-point structure (90/28/22/10/5) and the $1,150/month Dignity Floor for 30-year contributors. The payroll tax flows undifferentiated to the General Fund. No destination silos.

Skills Wallet (Engine 4)

$1,000/year per-person accrual to a $20,000 lifetime cap; use-or-lose forfeit at age 55. Funded from the General Fund; co-launched with payroll tax because the same workers paying the levy accrue the entitlement. Productivity Turbo doubles accrual during recessions.

Comprehensive withholding base

payroll tax operates on the same comprehensive base as the progressive income-tax ladder. False statement at any disclosure layer is independently tax fraud; the disclosed records become the audit basis for every other instrument that touches the same base.

Progressive rate ladder

payroll tax and the top income rate move together under Debt Sunset — coupled 1:1 in 0.25pp steps, in the same direction. Burden distribution stays in proportion across the income range at every governor position.

VAT

Together payroll tax and VAT are the architecture's structural-revenue stabilizers. payroll tax collects on payroll (volatile with employment); VAT on consumption (less volatile). Together they smooth federal revenue across cycles.

State Medicaid relief

States are relieved of their legacy Medicaid match (~$270B/year at steady state). The Accord expects states to reduce taxes proportionally; states that capture the windfall instead of returning it to residents are de facto raising the combined federal+state burden on their own taxpayers.

Demographic pressure is absorbed through payroll tax, not through benefit cuts. The SS 2.0 benefit structure is fixed by statute; the levy that funds it is not. If the worker-to-retiree ratio falls below the architecture's assumed trajectory — because the Parity Wedge fails to deliver the labor-force replacement the projections assume, because fertility recovers more slowly than the family-policy stack predicts, or because economic conditions shorten working lives — Debt Sunset detects the fiscal drift in the Year N+4 deployable projection and raises payroll tax (and the coupled top income rate) in 0.25-percentage-point steps within the corridor. Debt Sunset is cause-agnostic: it does not care whether pressure originates from immigration shortfall, healthcare cost overrun, or any other source. The architectural commitment is that the levy moves before the benefit does. The bigger the demographic shortfall, the larger the payroll tax increase — bounded by the statutory corridor and visible to taxpayers as a governor decision rather than a political negotiation.

Honesty about gaps. The Accord's credibility comes partly from explicit acknowledgment of what is not yet specified. The items below are flagged for v10.2 specification or for outside expert review.

• Equity-grant withholding timing: collect on grant vs. vest vs. exercise. The substance principle is to collect when the worker has unrestricted access to the value, but the implementation rule across restricted stock, ISOs, NQSOs, and RSUs needs explicit specification before the comprehensive base is administratively complete.