Effective January 1, 2008, taxes are set to go up for a very select group of people – those who are self-employed or earning wages and making between $97,500 and more than $102,000. The tax increase for those on the higher end will be $558 per year in perpetuity.
It’s a beautiful way to do tax increases – it’s hard wired into the code, so that no one in congress has to vote on it. And it happens every year. Since George W. Bush took office in 2001, taxes have gone up $2,678 per year for anyone making more than the annual benefit base for Social Security, which was $80,400 when he took office. He’s not taken any notice, and frankly, since it is never publicized, the people who pay this tax largely let it pass unnoticed. (Try Googling this increase – use whatever terminology pleases you. You won’t find it anywhere in the news.)
A few of things to note in passing:
First, George W. Bush, and the Democrats and Republicans in congress are not against tax increases. They only care about tax increases for those who can put pressure on them on election day – the people who finance their campaigns, the wealthy. That’s why this tax increase passes each year without notice – it hits people who are not politically connected.
Second, when payroll tax is added to their regular income tax, these self-employed and wage earners are being taxed at 39.2% of their last dollar earned. Add Montana’s tax to that – 6.75%, and they are paying taxes at a 46% marginal rate. That’s far more than Bush’s wealthy constituents who have benefited so much from his past tax increases pay. It’s a rate that in current temper of the times would be considered confiscatory – if it affected politically connected people.
Finally, there was a great outcry in years past when inflation would push people into higher tax brackets. Most of the code is now adjusted annually for inflation, to keep taxes from going up. The payroll tax is adjusted annually for inflation too. The tax goes up.
Our tax system is diabolically clever, designed to hit the middle class hardest. It’s essentially flat for most of us, but regressive for those who live on dividends and capital gains. The guy who flips your burgers pays a marginal rate of 24-29%, yet gets scoffed at as being a freeloader by those who pay less than him. Our tax system is the ultimate joke on working people, designed by people who apparently hold them in contempt.
###chirp###
Piece of Mindful 
According to the Tax foundation:
http://www.taxfoundation.org/files/wp1.pdf
When figuring taxes paid and government benefits received:
Bottom 20% gets net gain of $31,185
2nd 20% gets $18,o67
3rd 20% gets $6427
4th 20% loses $8091
Top 20% loses $48,499
That doesn’t look like a windfall for the rich to me.
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Thanks for the info Mark. This is good stuff.
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It’s an interesting study, Rocky – 84 pages long and I don’t have time this AM, but scanning it I noticed something that is seldom admitted in public – the government takes in more payroll tax than income tax. There’s an interesting feature in the payroll tax, and that is that half of it is a hidden tax, commonly referred to as the “employer’s share”. That is money diverted from the employee, money he never sees, but money the employer must spend that have that employee on the payroll. SO in the numbers I give above, I put the employer’s share where it belongs, on the back of the employee. The study doesn’t discuss, so far as I can see, the employer’s share in terms of who bears the burden.
Secondly, the payroll tax is what is used to pay social security retirement, disability and surviver benefits, theoretically. It is levied exclusively on incomes of $97,500 or less ($102,000 effective 2008). There is far more payroll tax collected than paid out in benefits. (The excess goes into what we call the general fund, or military and Medicaid and all of that. They seldom talk about how Social Security money is being used to buy bombers. Another day.) My emphasis above was on the combined effect of payroll and income tax, and the effective tax rates I cite give evidence that our tax system is not nearly so progressive as your study makes out.
But it’s hard to tell. By breaking it down by quintile, the study lumps the very wealthy in with the middle class. It would be a better study if they segregated the top 1% – they control more 39% of the wealth of this country. The study throws them in with people making 100,000 per year – not very enlightening. Segregating them in terms of burden and benefits would be interesting!
But it’s a great resource – I’m going to print it. It is the only place I have seen that attempts to combine income and payroll tax, and the only sources I’ve ever seen cited that showed that more tax is collected from the middle and working class via the payroll tax than from all of us via the income tax. I’m saving it. Thanks.
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I have to say that I haven’t read it all either since it is a lengthy piece. What I have taken in has been interesting though. I’ll get to the rest.
As to taxes hitting the middle class hardest, I’d like to see the AMT (alternative minimum tax to anyone unsure of what that is) adjusted and indexed to inflation. This is a tax intended to hit the wealthy which is increasingly slapping people of more middle class status. I see in the Gazette today that Rehberg voted against a bill which would adress this issue. The bill passed by 216-193 vote.
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I’m coming around to Baucus’ point of view on that – that we ought to just eliminate AMT. It’s certainly not doing what it was intended to do.
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