Uncapping the payroll tax reveals still another cultural misstep by Sen. Obama. He apparently has a difficult time understanding that nowadays, a veteran fireman or a veteran cop, married to a veteran schoolteacher, will make well over $100,000. In fact, they can make close to $200,000. Yet Obama still wants to go ahead and tax both the first and last payroll dollar of this group at a very high marginal tax rate by uncapping the Social Security (FICA) tax.
Larry Kudlow, The Corner on National Review Online
The salaries are questionable, but regardless of that fiction, since when did FICA become a joint tax?
The cap (currently $102,000) is on individual wages.
Via Eschaton.
One of the highest marginal rates in the federal tax system are faced by working class people who are hit by FICA and the phase out of the earned income tax credit at the same time.
The other is the combination of income taxes and estate taxes paid by heirs of multi-millionaires who died owning large tax deferred retirement assets like traditional IRAs and 401(k) plans.
Kudlow has the impact backwards. The lowest income people who are hurt are single income couples with the single income just over $102,000. While a single income of $102,000 seems high, it is the same amount that a veteran fireman or a veteran cop, married to a veteran schoolteacher, might make, so $102,000 is arguably a middle class family income even if it comes from one high income person.
The trouble is that the system is designed to assume that you have a family with a single high income. They are getting the tax burden and social security benefit intended by the system. The people who are screwed are the two income couples who get benefits not much beyond what a single income couple gets, but pay twice as much in taxes.
One in five American households have income over $100,000.
That top 20% isn’t “middle” class.
The average person pays about 7.5% for the employee portion of this tax. A CEO earning $10 million would only pay about 0.075%.
The question remains — Should the social security (FICA) tax be capped at $102,000 of an individual’s earnings (as it is this year), the cap raised, or the cap removed (as it is for Medicare).
According to the Bureau of the Census, in 2006 the median income for households was $48,201. That, is half the 116 million households earned less than that, half earned more.
Approximately half of Americans (over age 24) have an income under $26,000 a year. Half earn more.
I would like to see the cap removed.
If that was done we would then have a choice on how to use the excess generated by removing the cap. Should it be used to lower rates for everyone? Should the first few thousand of income be exempt? Extend Medicare to those not covered by work?
George F. Will is either stupid or full of it too, as he continues the myth that the FICA tax is a joint tax.
In reality, of course, raising the cap would have no impact on the couple.