The Unfairness and Stupidity of the Payroll Tax

[DonRedwood]

I highly recommend this article. It sums up the payroll tax so clearly that even a Republican could understand the unfairness of this tax!

The Unfairness and Stupidity of the Payroll Tax

A temporary payroll tax cut was allowed to expire recently, meaning that payroll taxes are now removing an extra 2% from everyone's paychecks. Every corporation in the business of selling things to non-rich Americans is freaking out, because they expect their customers to cut back on spending now. The working class has just seen its take-home pay reduced by 2%; working class people will now have 2% less to spend on food, and clothes, and toilet paper, and everything else. It may be true that letting the payroll tax rise was foolish in the short term. It is definitely true that payroll taxes in general are, as constructed, a bad idea.

Who should be taxed? People who can afford to pay taxes. And what should be taxed? Money that is not immediately necessary to pay for basic needs. This is the essence of progressive taxation. The people who can afford to pay more should pay more. The payroll tax represents the opposite of this idea. It only applies to the first $110K in earnings. That way, it makes sure to capture a significant portion of the earnings of all poor-to-middle-class people, and then cut off before capturing a significant portion of the earnings of any rich people. It is a tax that, by design, fucks the poor (whose welfare the government should be most concerned with protecting), and not the rich. This is the most important thing to know about the payroll tax.

If you are a full time fast food worker making, say, minimum wage—$7.25 per hour, 40 hours a week, 50 weeks per year—you make $14,500 per year, or $290 per week. More than six percent of that is taken out of your check right off the top for payroll taxes. If you are a full time CEO making $14.5 million per year, you also pay a little over six percent—except, not on the last $14.4 million per year.

The payroll tax is the most unfair tax in existence. Any raise in the payroll tax represents a burden on the poor and middle class that specifically does not impose an equal or greater burden on the rich, who are more able to afford such a burden. This is asinine.

The rest of the article by Hamilton Nolan is certainly worth the read. Rec it if you agree so more peeps read it. Oh, and happy weekend!

http://gawker.com/5986230/the-unfairness-and-stupidity-of-the-payroll-tax

[PA Democrat]

1. If you are self-employed, you will pay an extra 4%.

[Luminous Animal]

4. No only 2%. The payroll tax holiday was on the employee's portion only. The employer still paid 6.2%

[maxsolomon]

2. You WERE paying that 2% during the Bush Era.

It was unfair then, sure, but the reduction was a stimulus measure. It's over. Back to normal.

[Sherman A1]

9. Precisely

And frankly I am glad it is. I never thought it a good idea at all.

[tblue37]

3. And if you supplement your way too small income with part-time self-employment on the

Last edited Fri Feb 22, 2013, 09:58 PM - Edit history (1)

side, as I do by tutoring, editing, and some freelance writing, you end up paying both the employee's share and the employer's share of the payroll tax, no matter how little you earn from those side jobs.

[Travis_0004]

6. Which makes sense, since you are your own employer.

[badtoworse]

5. I thought payroll taxes were to fund your own Social Security and your own Medicare

Why should someone else pay for that?

[former9thward]

10. You thought wrong.

Your payroll taxes do not fund a penny of your retirement. That will be funded by the generations working while you are in retirement. You are paying for the current retirees with your taxes. That is the way the system has always been set up.

[theKed]

11. The problem being...?

You fund them, the next funds you, the one after funds them, etc, etc.

[former9thward]

13. That is the exact opposite of what the poster said that I was replying to.

Did you even read the post? As far as the problem there is a larger and larger pool of retirees and smaller and smaller pool of workers. Math is not the friend of the SS system.

[SharonAnn]

24. Like school funding. Others paid for my school, I pay for the next generation, etc.

[badtoworse]

21. You're just looking at it in terms of cash flow

My point is that the benefits you get when you retire should be based on what you paid into it when you were working. ETA: The same formula should apply to everyone. The system was designed that way and I don't see any reason to change it.

[former9thward]

22. Assuming you live a natural life span you will get far more than you paid in.

FDR originally set the retirement age at 65 because that was the life expectancy at the time. It was not expected the system would have to pay out much money. Now our life expectancy is in the high 70s. In addition in the 1930s there was a huge amount of workers compared to retirees. Now there is a huge amount of retirees compared to a much smaller pool of workers.

[badtoworse]

23. I think you missed my point

I'm not OK with people being taxed at different rates to get the same benefit. In other words, if you lift the FICA cap, then anyone who pays over the cap should get a proportionately higher benefit.

[brentspeak]

7. Then lift the payroll cap on incomes over $110,000

Problem solved.

Because the payroll tax funds two things that are actually important, and which the non-rich need in order to survive: Social Security and Medicare.

[bluestate10]

14. The Cap should b eliminated and the rate on people earning less than $110,000 annually

lowered to 4.6% permanently. The big problem is how to treat people that earn more than $110,000. My input is that their rate after they pay in what is now their cap should continuously drop as they continue to pay in for a year - OR - they should start with a rate lower than 6.2% and pay at that rate all year. The goal should be to capture some of the money lost to the Cap, but don't have high earners paying far more into the Trust Fund than they now pay. For example, a person making $500,000 now pays in $6,820 annually, having that person pay a rate of 2% with no cap would capture $10,000 annually for the system and hardly be noticed by the earner. Having the person pay 6.2% without a cap would have that pay in $31,000 and would likely cause resistance from the earner. The rate for higher earners should be even lower, but they should also pay in a lot more than they now pay in annually when all is said and done.

[doc03]

8. I have no problem with the payroll tax just the way it is, the 2% was

temporary. It was even extended a year so what the f--- is the complaint. Now if they raise to cap that would be OK and would fix SS.

[bluestate10]

15. The Cap should not be raised, it should be eliminated. People should pay in year long. nt

[doc03]

19. Oh I agree, that's what I meant eliminated not raised. n/t

[indepat]

12. The payroll tax was dramatically increased by the gipper, both the rate and the base, an onerous

tax which was placed only on lower salaries and wages in the intervening 30 years, but has been excused on higher wages and salaries, then bazinga, the Republicans are intent on welshing on these already-paid-for benefits, an action that would be outright fraud in the private sector, but is SOP of Republicans who will stop at nothing to continue a favored tax treatment for the most affluent and large corporations.

[hay rick]

16. The problem isn't payroll taxes, it's inadequate incomes.

"Payroll taxes causing hardship" and "payroll taxes hurting the economy" are right-wing memes that the media prefers to "we need to raise the minimum wage" and "we need to make sure that all jobs pay a living wage."

The problem isn't that the payroll tax is onerous- the problem is that the wages they are assessed on are inadequate to meet minimum living expenses in the first place.

[0rganism]

17. in this case, there are multiple problems

You are correct, wages are too low overall.

However, the OP is also correct, our payroll tax structure is onerous. A capped flat tax is about as regressive as it gets. It's one of the rare circumstances where a straight-up flat tax would actually be more progressive than what we have now.

[hay rick]

18. I recognize that the payroll tax is regressive.

I am pointing out the drawback to addressing the "payroll tax problem." One, as I mentioned, is that it is a substitute for the much more important discussion of why wage levels are way too low for way too many people. The other drawback is that it encourages people to push for another stimulative payroll tax holiday- a short-term comfort food fix that undermines both the long-term solvency of social security and its broad appeal as an earned benefit.

[Nye Bevan]

20. Actually the cap is totally fair.

Because the CEO earning $14.5mm will receive the exact same Social Security payment when he retires as the guy who earns $110k.