When is a Tax on Income Not an Income Tax?

Answer: When it is a Social Security tax.

And there you have the central obfuscation of much of the conservative spin on tax burden and tax progressivity. They focus on cutting only “income taxes” i.e. only those taxes collected collected by the IRS and paid into the Treasury. They conveniently exclude another tax on income which is by far the larger of the two for much of the population – the Social Security or FICA tax.

If you are like most folks you don’t really pay much attention to the list of cryptic acronyms on your pay stub telling you which deduction went to which entity. You just focus on the bottom line and wish that it were closer to the line named “gross pay”. But this veil of ignorance hides a multitude of sins for those obsessed with tax cuts. If the Social Security tax is the biggest tax paid by lower income workers and is not paid at all by those in the upper brackets then the increases in Social Security taxes over the past 20 years coupled with the decreases in “income tax” rates means that there has been a huge shift away from taxing rich people in favor of taxing poor ones.

All of this would be OK you might think if we eventually get the Social Security tax back in the form of a pension after we retire. But if, as pgl has noted in the post just before this one – See here – the government runs up so much debt today that they have no tax capacity left to redeem the SS Trust Fund’s bonds in the future, then the SS taxes really are just another income tax.

Moral: Any measure of tax burden, progressivity or regressivity that looks only at one of the two main taxes is probably not very accurate.

Here are the basic facts about the rates:

The Social Security tax (6.2% paid by workers and employers for a total of 12.4%) is paid mostly by lower income people and is only paid on the first $94,200 of income. That is, Bill Gates pays the same SS tax as a middle class person earning only 94K.

The Federal Income Tax has several different brackets but maxes out at 35% at an income of about $336,000 while income up to $7550 ($15,000 for married couples) isnt taxed and income between $7,550 and $30,650 ($15,000 -61,000 for married couples)is taxed at 15% and $30,650 to $74,200 (61-123K for married couples) at 25%. (See the IRS website here )

These rates mean that for most of those under the median household income of about $44K the Social Security tax is bigger than the income tax. The reverse is true for those above the median.