Corporate taxes down, workers’ taxes up–that’s America today
by Linda Beale
Corporate taxes down, workers’ taxes up–that’s America today
Corporate taxes used to constitute a significant portion of federal revenues, almost a third in 1950. Payroll taxes from workers were considerably less–around 10% in 1950. Andrew Leonard, Who Really Pays Taxes? Salon.com (Aug. 28, 2012).
The times have changed. Corporate taxes have declined steeply in the 21st century as a percent of GDP, while payroll taxes paid by workers have become a significant part of tax revenues–more than a third in 2007.
That is one cause of the inordinate inequality of income and wealth that this country now endures–an inequality that has dire consequences for the economy and for the well-being or the vast majority of ordinary Americans.
Assuming our companies sell more than ever overseas, doesn’t it makes sense that their corporate taxes are down? What is the tax rate conmpared to earnings from deomestic sales? The world is not the same as in 1950.
Also, workers get their payroll taxes back in retirement. Why are these even a part of the discussion? Obamacare adds a whole new (increases) payroll tax on the rich next year.
Mcwop is right. The payroll tax is not a tax… it gets called one because it resembles a tax in some ways, but it is actually an insurance premium. A way for workers to save and insure some of their own money for their old age and other eventualities.
Unless you assume that “the rich” ought to be paying for everyone’s retirement, it is nonsense to complain that “the poor” pay more for payroll taxes.
Now, if you want “the rich” to pay more taxes… more real taxes… i am on your side.
And if you think “the poor” need more welfare… I might be on your side as well.
But don’t lay the burden for either on Social Security which does an important job very well without being asked to solve every social and cosmic-justice problem that presents itself to your imagination.
For the technicality, you miss the point that it has replaced corporate taxes as the revenue to fund everything including tax breaks
The fastest growing corporations in the nation were Financial Services which grew corporate profits from 10% in the eighties to ~40% of total corporate profits by the time of the crash. Much of their non-labor product was in the US. This sector went from 23% of GDP to 31%.
Aren’t the portion of the Employer Payroll Taxes deductible also??? In which case they would see a benefit and for emplyees these wages paid into SS are taxable
Run, it has not replaced coporate taxes. The payrol tax goes to a very specific purpose – technically not a lock box but not the general budget either.
Yes the ER portion of the payroll tax is deductible, becuase it is really considered part of wages. It also makes the self employment tax more fair.
IMO the corporate income tax should be abolished and a VAT implemented. Each taxpayer below a certain income threshold gets a income credit to offset VAT, and all coporations pay the VAT even the ones that lose money. That would be a far more efficient and fair system – also harder to game.
was thinking along those lines myself… a sales tax on corporations. they can pass the tax through to their customers. fine with me.
note, this is not “value added.” simply a tax on sales. they can work out the “value” between themselves and their customers and their suppliers.
on the contrary. the payroll tax pays for SS. period. the amount that was lent to the general budget is being paid back as we speak.
in fact… the interest on that amount is paid “by” the corps etc “to” SS.
so you post boomers are getting a subsidy paid for by the interest on the “extra” tax paid by the boomers.
but don’t tell anyone. they are confused enough.
The fastest growing segment of the economy was financial services and such being TBTF and Wall Street which is taxed at a much lower rate than corporate taxes. Your explanation of companies sourcing overseas as the cause of lower revenue is partially tue but is not the bulk of the reason for lower coporate taxes.
And I may misunderstand this, when there was a “revenue surplus;” what happened to the surplus? It was used to purchase treasuries and the money went where at that point? Hmmmm??? The GF and what was it used for then?
If SS Withholding, which finances SS, is considered regressive as it does not vary by income percentage wise; most certainly a VAT or Flat Tax based upon consumption is even more regressive as it strikes at the lower incomes who have far less disposable income than the higher incomes. Coming from you Coberly I am surprised and not so from McWop.
slow down there boy.
the money from the SS surplus was LENT to the government. that means it is paid back with interest. as is happening right now.
if you buy a savings bond, and the bond is used for buying, say, war toys, that is not a tax. you will get your money back, with interest. same with SS.
the bad guys hope to confuse you about this. they can spin it both ways.
as for a corporate sales tax… how in the end is that any different from a corporate income tax, except that it’s harder to game.
see, it works like this: the corporation that produces milk, say, looks at its costs… say a hundred dollars for cow food and twenty dollars for income taxes, so it has to charge a hundred and fifty dollars in order to make thirty dollars profit.
or, it can pay a hundred dollars for cow food, and twenty dollars for sales tax, so it has to charge 150 dollars to get thirty dollars profit. they can figure this stuff out in advance. they have accountants.
it’s a 13% sales tax versus a 40% income tax. same number of dollars though. and same effect on cost to the customer.
no reason the customer would ever see the tax… except you can be damn sure the corps would make sure the customer saw it at the checkout counter. only way to keep the people mad at the government.
what i don’t know is if a “sales” tax applied to every company’s sales would work… on account of things that got sold many times as value is added would end up being taxed more times that stuff that was “sold once” or had value added in-house. i am guessing not. but then a VAT would work … or could be made to work.
i am also assuming that taxes like profits would be passed on to customers as much as the traffic would bear. the point here is not to attain “tax justice” which is not possible, but just to find the simplest way to collect taxes that is hard to game.
This comment has been removed by the author.
The mix of businesses who have a legal form of C-Corps has been losing share to those that are pass-through entities like S-Corps, LLCs, LLPs, partnerships, etc. The logical outcome from this is lower corporate taxes and higher personal as a share of overall taxes – even if it were done in a revenue neutral basis.
Also corporations don’t pay taxes – people do. Taxes paid on behalf of corporations are paid by some combination of owners, employees, or customers.
And we have the highest corporate tax rate in the world. (Japan just lowered theirs).
How does this jive?
Because companies shift their profits to other countries with lower marginal tax rates through transfer pricing and assignment of overhead.
So US companies pay taxes to other countries that have lower marginal tax rates.
In addition, once the company arbritarily “earns the money overseas” it is subject to a 35% US repatriation tax if it wants to bring the money back into the US.
As a result, companies keep and reinvest their earnings overseas.
So the high marginal tax rates are counterproductive not only to tax revenues, but also US jobs and investment.
that may all be true. i wouldn’t know. but you also need to know that companies went overseas in the first place because of the “strong dollar” created by Fed policies in the 1980’s.
the world is a lot more complicated than you suppose.
meanwhile, the actual tax rates are a good deal less than the published tax rates… something you need to find out about.
and in the third place, there is something to be said for paying the taxes that support the country that supported you when you were young.
if all you give a damn about is the bottom line this quarter, you are cutting your own throat in the long run. besides being what most people would call a traitor if they understood what you were doing.
Also Linda 1950 is a bad year to use for cross comparison of tax incidence between payroll tax and anything else and not incidentally is the year often picked by the bad guys to demonstrate how ‘unsustainable’ ‘entitlements’ are.
The Social Security Amendments of 1950, 1956, the introduction of Medicare in 1964 all had significant STRUCTURAL changes in payroll tax incidence. Very short version 1951 saw the first COLA (not implemented the same way but boosting both benefits and FICA), 1956 saw the introduction of Disability Insurance with its own FICA, 1964-65 Medicare with ITS. And all these changes were not due to growth in the 1950 program as such so much as transformations. Additionally the post 1950 years were marked by the gradual phaseout of Social Security Title 1. Which workers were paying for through the General Fund and not FICA and still represented tax incidence to fund government retirement programs.
Basically big red flags should go up and alarms blare ANYTIME you see critics (or even neutral commenters) site either 1940 or 1950 as baseline years for Social Security. Because once you drill down you can see that the Social Security Amendments of 1939 (which introduced Survivors) and 1950 (which radically readjusted the balance between SS Titles 1 and 2 make the before and after programs almost incommensurable. That is it really “Isn’t your granddad’s Oldsmobile”.
For example just by backing dedicated DI and Medicare Part A FICA out of the current combined 13.4%(?) you end up with an incidence only 60% as much. And this BEFORE readjusting for the Amendments of 1950 and 1939. That is we are dealing with at least Four Stages of Separation before you even get to most discussion of wage and benefit growth indexing from 1950 to date.
This comment has been removed by the author.
Corporations are government chartered collectives, in theory, run for the benefit of their owners, but in practice for the benefit of their top managers. When corporate taxes were higher, companies paid more in dividends, had more efficient managers, and were nearly forced to reinvest.
It’s not as if corporations don’t receive a massive subsidy in the form of limited liability and an open ended organization structure. When they were paying taxes, this kind of entity made sense for the government. It’s not as if corporations are necessary. England did the entire Industrial Revolution and built a huge empire without them. We should really reassess whether we should continue subsidizing them.
too late. they are assessing whether they need us.