Monday, November 12, 2012

A Look at Payroll Taxes

It’s eye-opening to look at the role that Payroll Taxes have played over time as a source of Federal Revenues. The data are there, to be sure, but not presented quite as starkly as I am doing this morning. I have these data from the Office of Management and Budget, an agency of the White House (link, see Table 2.1).



The dramatic change in the 1950 to 2012 period has been the steep rise of payroll taxes as a percent of total revenue—and the almost parallel decline of corporate taxes. To make this picture even more dramatic, we can look all the way back to 1934 using the White House Data. Here it is in a tabular form.

Revenues as Percent of Total, 1934, 1950, and 2012
Change from
1934
1950
2012
1934
1950
Income Tax
14.2
39.9
47.2
33.0
7.3
Corporate
12.3
26.5
9.6
-2.7
-16.9
Payroll
1.0
11.0
34.1
33.1
23.1
Excise
45.8
19.1
3.2
-42.6
-15.9
Other
26.7
3.4
6.0
-20.7
2.6

Now it is well to keep in mind that payroll taxes are regressive, thus they apply only up to a salary/wage income of $110,100 in 2012 and (perhaps appropriately in year 2013) to $113,700 next year. Thus it does not cover all of the $250,000 which seems, today, to mark the boundary of “real” money. But it falls heavily on the working poor. For them the payroll tax is a real whopper, comparable or greater than owed income tax.

If we now drop down that Fiscal Cliff, that black line up there will shoot a ways higher. The graphic also shows that Social Security contributions loom very large in the eyes of the Federal Government. They represent more than a third of the total revenue stream.

For completeness, the Other category consists of estate and gift taxes (7.7% in 2012), customs and related fees (21%), and miscellaneous income (71.3%). Of that last about three-quarters are interest earnings of the Federal Reserve.

Excise taxes are levied on alcohol, tobacco, telephone services. It also includes windfall profit taxes and revenues associated with transportation and other sectoral activities.

Who has the power? If we look at changes between 1934 and 2012, we see that the lower quintiles of the population have borne the brunt of increases, 33.1 percent; those paying income taxes come next.  Those for whom the payroll tax is a meaningful levy saw it as the biggest tax increase in the 1950 to 2012 period! They bore the brunt of the relatively small increase in income taxes due to the tax-cutting that became a perennial favorite in politics in that later period. My youngest daughter, once long ago, still as a child, articulated the benefits achieved by the corporate and institutional sectors. Asked to share a toy, Michelle memorably said: “I want to share by myself.”

4 comments:

  1. Time does change most people and Michelle too has undergone such change. She could now be described, though not be herself, as a Lefty-Radical. Though that designation in France perhaps sounds slightly less harsh than it does here.

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  2. WHAT A CHART!

    It paints a very clear picture and doesn't even touch the taxing shifts occurring at the state level... where the moves are very much in the same direction, placing more burden on the individual and less and less on large, profit institutions.

    Meanwhile, the debt has risen, energy costs are rising and will continue to do so, and the future holds lower rates of growth, which make paying back the debt harder and harder. Not a pretty picture.

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    Replies
    1. Yes. The picture is troubling and complicated. We need a smart and responsible Congress to solve this one. And I worry that John has his finger on the real problem (gerrymandering) which perpetuates dead-lock even when the people as a whole have clearly picked a direction...

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    2. It's very sad to know that there is an imbalance regarding the taxes assigned to employees and companies. The more revenue that the government needs, the larger the tax increases for employees. This is something that the government should have a hot eye on.

      Clemencia Summers

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