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Payroll tax is regressive

To the editor:

The FICA, i.e., payroll tax that primarily finances progressive Social Security benefits is perhaps the most regressive tax foisted upon U.S. citizens. Aside from the relatively small Medicare portion of the payroll tax, there is a maximum cap, $113,700 in 2013, above which tax that pays for benefits is not withheld.

Wouldn’t it have made more sense, considering the current state of the economy, to give middle-income workers and the working poor a break by lifting that cap in lieu of rescinding the presumably temporary 2 percent reduction in the tax rate?

Today, those who earn above the cap pay the full payroll tax on a portion of their earned income while everyone else pays on their entire earned income. Very high earners with multimillion dollar salaries, for example, pay the full payroll tax on a very small fraction of their earned income. Is this fair?

Putting more income into the hands of middle class and poorer workers, those who spend the bulk of their earning on consumer purchases, by reinstating the 2 percent payroll tax reduction is good for business, promotes expansion, hiring, and so forth.

All boats rise when our economic engine fires on all pistons. Reinstating the 2 percent reduction and removing the cap on America’s payroll tax will also increase tax revenues, thus reduce budget deficits. This makes a lot more sense than proposed cuts to government spending which will increase unemployment in both the public and private sectors, slow economic growth, reduce tax revenues and increase budget deficits.

It boggles the mind that the payroll tax cap remains a sacred cow while nary a whimper was heard when the FICA tax rate reduction was rescinded. Givebacks generally meet with a whole lot of resistance; note the clamor created when the Bush income tax rate reductions were eliminated at the high end. Are the vast majority of working Americans in a stupor?

Only a strong grassroots effort will force politicians to change the regressive nature of our FICA tax and reduce rates. If those with insight can tear folks, especially younger folks, away from their smart phones and motivate enough of them to protest this and other grand rip-offs that are against their economic interests, our besieged middle class has a chance to survive into the future. Otherwise, forget about it.
Lawrence Uniglicht
Galloway

 

 


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