OPINION:
A new bogeyman in state legislatures is the credit card swipe fee.
From red-blooded Austin, Texas, to deep-blue Springfield, Illinois, lawmakers on both sides of the aisle are lining up to campaign against credit card swipe fees, the everyday cost of doing business in a modern economy. Some want to cap the fees, and others want to ban them.
In the fervor to rein in Visa and Mastercard, lawmakers have been peculiarly silent about a far more painful and predictable cost for businesses that politicians control: payroll taxes.
Payroll taxes aren’t flashy. They don’t show up on receipts or fuel TikTok boycotts, but they’re a slow bleed, relentless and entirely government-made. Unlike swipe fees, which are the product of business negotiations, payroll taxes are imposed by fiat. Every paycheck. Every business. Every time.
Payroll taxes cost a lot, and they’re not optional. Let’s put numbers on the table. In 2023 alone, state governments collected $41 billion in State Unemployment Tax Act revenue, and the federal government collected another $8 billion through the Federal Unemployment Tax Act. That’s nearly $50 billion, all for employing people.
Where’s the outrage? Where are the speeches about family-owned shops drowning under the weight of payroll taxes? Where’s the expose showing most businesses pay more in payroll taxes for their workers than they will in monthly swipe fees? It’s easier, of course, to point at big banks and “plastic middlemen.” It’s harder to look in the mirror and acknowledge that the government often squeezes small businesses the hardest.
Swipe fees fund fraud protection, and payroll taxes fund fraudsters. A small business with five employees, each earning $45,000 annually, pays more than $17,000 annually in employer-side payroll taxes, covering Social Security, Medicare, and state and federal unemployment insurance. That’s the government’s cut just for allowing you to hire someone.
Compare that with credit card interchange fees, typically 1.5% to 3% per transaction. Sure, those add up, but they come with flexibility. Businesses can shop for better rates, adjust prices or offer cash discounts. Those swipe fees fund things like fraud protection and secure transactions.
Payroll taxes? They fund programs riddled with fraud. During the pandemic crisis, the Government Accountability Office estimated that $100 billion to $135 billion in unemployment benefits were lost to fraud. That’s not just waste. That’s failure. Swipe fees? Optional. Payroll taxes? Mandatory. Lawmakers created this problem, but they can fix it. In 2025, the Congressional Budget Office projects that states will collect $33 billion in state unemployment taxes, plus $8 billion through federal unemployment. That’s money taken off the top from every small-business owner trying to grow, hire or give raises, without options, without negotiation.
If lawmakers want to help small businesses, they should stop chasing headlines and fix their balance sheets. Many politicians railing against swipe fees oversee bloated payrolls, red-inked pensions and outdated unemployment systems.
Here’s the good news: Lawmakers aren’t powerless. They could ease the payroll tax squeeze on small employers, crack down on rampant fraud, or scale back benefit durations when jobs are plentiful and the economy is strong. It’s not flashy reform, but it’s the kind that moves the needle. It’s easy to play populist, but when the little guy wants to hire someone and can’t afford the government’s surcharge, what then? What happens when every new job and raise comes with an invisible cost, not from the private sector but from the state? This debate isn’t about swipe fees. It’s about priorities.
The real swipe hurting small businesses? That’s the one government takes out of every paycheck. It’s time lawmakers owned up to it.
• Mattias Gugel is the director of state external affairs at the National Taxpayers Union. Jess Ward is the senior director of state affairs at the National Taxpayers Union.
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