Current Magazine

Dissecting the Payroll Tax

Posted on the 21 November 2011 by ---

Dissecting the Payroll Tax

A graph from Ezra Klein comparing the efficacy of proposed
Social Security fixes

The payroll taxes were created to ensure the solvency of the American social safety net.  Employees and employers each pay 1.45% on all income earned/paid to support Medicare.  However, the system that finances Social Security is more complex.  Currently, there is a tax rate of 4.2% (a temporary stimulus reduction) for income earned by employees, and a 6.2% rate on income paid by employers.  Both are capped at $106,800.  Every dollar paid to an individual after that cap is tax-free.  The result is a tax that is truly regressive; it favors the rich over the poor.  Anyone earning up to $106,800 pays a payroll tax rate of 4.2% in addition to income taxes, sales taxes, and property taxes.  However, someone earning $2 million per year is taxed at a total rate of just .2%!  The more money you earn per year, the lower the percentage of your income you are expected to contribute.  And, the more salary budgets are concentrated in a few people, the less a business contributes.
It is a perverse tax system - one that incentivizes CEO bonuses more than new hires.  And, its regressive nature severely limits the revenues it can collect, endangering the long term existence of Social Security.  We wouln't need to make any adjustments to the way Social Security works for almost a century if we lifted the cap today.  Compare that to the complex schemes of paring down benefits and restructuring the program that are currently being proposed.  Is it worth preserving the status quo, a status quo that hurts job growth and imperils entitlement programs that help millions of Americans?  No.
In fact, we could even afford to lower the payroll tax rate, something conservatives desire, if we simply eliminated the tax cap.  It's a win-win, nonpartisan solution - so why can't Washington get to work and make addressing this a major component of a comprehensive budgetary strategy.

You Might Also Like :

Back to Featured Articles on Logo Paperblog

These articles might interest you :

  • HCTF Premiere - Slum Summer: Bobby

    HCTF Premiere Slum Summer: Bobby

    Anglo-American indie band Slum Summer pair an American lo-fi garage rock vibe to an English sense for melody on their single Bobby, a taste from their... Read more

    The 10 December 2018 by   Hctf
  • Tony Montana’s White Suit in Scarface

    Tony Montana’s White Suit Scarface

    Al Pacino as Tony Montana in Scarface (1983)VitalsAl Pacino as Tony Montana, impulsive and hotheaded cocaine dealerMiami, Summer 1981Film: Scarface Release Date... Read more

    The 10 December 2018 by   Nguzan
  • China Has Strict New Rules for Climbing Everest

    China Strict Rules Climbing Everest

    With the winter fall climbing season in the Himalaya now behind us and the spring climbing season still a bit far off, you would think there wouldn't be much... Read more

    The 10 December 2018 by   Kungfujedi
  • Managing the Micromanager

    Embed from Getty ImagesMicromanagers want to control every aspect of their employees’ work, down to the smallest detail. They insist on being consulted about... Read more

    The 10 December 2018 by   Candacemoody
  • 8 Ways To Prepare Yourself For Business Crises Ahead

    Ways Prepare Yourself Business Crises Ahead

    Most entrepreneurs see their new venture as a fun adventure, until the pressures of a cash flow crisis, or a manufacturing quality problem, or a major customer... Read more

    The 10 December 2018 by   Martin Zwilling
  • Christmas Style: Neutrals + Last Minute Gift Ideas

    Christmas Style: Neutrals Last Minute Gift Ideas

    This is a sponsored conversation written by me on behalf of Meijer. All opinions and thoughts are my own.  Is anyone else having super weird weather where they... Read more

    The 10 December 2018 by   Thesamanthashow
  • The Cup Chronicles Cafe

    Chronicles Cafe

    Cup Chronicles Café is a cozy café located on 12th Main, Indiranagar, Bangalore. The place opened only few weeks back and has managed to attract crowd to try it... Read more

    The 10 December 2018 by   Rohit Dassani