I'm in the mode of my annual rant against the federal (and other) income taxes, but the reality is that for most of us, Income taxes are a lesser problem (other than the complexity and effort required to calculate them) than are Payroll Taxes.
Here's the data, from the CBO: http://www.cbo.gov/publications/collections/tax/2009/paying_more_payroll.pdf
| Percent of Households Paying More in Payroll Taxes Than Income Taxes (2006) | ||||
| Among Households Paying Some Payroll Tax |
Households
Paying Income or Payroll Tax |
|||
| Employee Share |
Both
Shares |
Employee Share |
Both
Shares |
|
| Income Category | ||||
| Lowest Quintile | 99.4 | 99.7 | 98.6 | 99.0 |
| Second Quintile |
91.4 | 98.5 | 88.4 | 95.2 |
| Middle Quintile | 69.8 | 94.3 | 62.7 | 84.6 |
| Fourth Quintile |
38.0 | 85.5 | 33.7 | 75.8 |
| Highest Quintile |
8.6 | 44.9 | 7.7 | 40.3 |
| Top 10% |
3.3 | 22.5 | 3.0 | 20.1 |
| Top 5% | 1.4 | 6.0 | 1.3 | 5.4 |
| Top
1% |
0.6 | 1.0 | 0.5 | 0.9 |
| All Quintiles | 58.8 | 83.3 | 54.4 | 76.9 |
So among the bottom 80% of us,
- 74.6% of those who pay some payroll tax see more flow from their paycheck in payroll taxes than they pay in federal income taxes;
- when one counts both the employer and employee portions, 94.5% pay more in payroll taxes;
- among those who pay either income or payroll taxes, 70.9% pay more in payroll taxes, taking into account only the employee portion; and
- 88.7% pay more in payroll taxes when both the employee and employer payments are counted.
Payroll Taxes are regressive. They fall on the first dollars one makes ... all the dollars most people earn ... with no exemptions, no standard deductions, no itemized deductions. And one could argue that most the dollars paid into Social Security (etc) also get taxed by the federal income tax. EITC -- Earned Income Tax Credits -- go to a few of the working poor, offsetting their Payroll Taxes, but generally don't reach a large share.
Am I proposing that we get rid of Social Security? No way. Millions of our elderly are completely dependent on it (and most of them experienced the 1930s Depression, and tended to be thrifty as a result), and our current generation of baby boomers is going to be equally dependent, barring some miracle. And I don't regard any kind of privatization of Social Security as wise; I think it would be hard to argue, after what we've experienced with mortgages, that most people should be managing their retirement money in today's market. If Bernard Madoff's well-heeled clients couldn't see what was a prudent investment and what wasn't, should we expect people who are living paycheck to paycheck -- as the majority of us are -- to do better?
Rather, I am suggesting that we ought to be considering other ways to fund Social Security. See, for example, Martha Phillips' 2001 paper, Returning Carbon Permit Proceeds to the Economy: Three Options. There are things which are currently being privatized which could justly be socialized, and the proceeds used to fund Social Security.
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