## FICA math

December 26, 2010

To the editor:

Our elected senators and representatives have been debating the Bush-era income tax cuts and have voted to extend them for all income levels. I am puzzled that none of these elected officials include the FICA tax on income when debating this issue. The FICA, Social Security tax, rate is 12.4 percent; 6.2 percent paid by the worker and 6.2 percent paid by the employer. During 2010, this tax is collected on income up to \$106,800; no FICA tax is collected on income over \$106,800.

The 2009 federal income tax rates on taxable income for married couples filing jointly were: 10 percent on income up to \$16,700, 15 percent on income between \$16,700 and \$67,900, 25 percent on income between \$67,900 and \$137,050, 28 percent on income between \$137,050 and \$208,850, 33 percent on income between \$208,850 and \$372,950, and 35 percent on income over \$372,950. Adding the FICA tax of 12.4 percent to these income tax rates shows that a couple with combined wages between \$67,900 and \$213,600 pay a higher tax rate on their income than a single person or couple with income over \$372,950.

I urge everyone to do the math on your income taxes and compare them with the taxes paid by the top income bracket. Then contact your senators and representative and demand that they fix this unfair income tax practice.

#### bisky1 7 years, 2 months ago

what amount would be fair mr pauls?

#### Richard Heckler 7 years, 2 months ago

If it were not for the middle class the bills would not get paid.

The significant higher income groups have several means in which to reduce their true incomes to the point they may not pay at all.

Then we have wealthy corporations that also have many loopholes to the point they pay no taxes on profits YET receive tax dollar assistance known as tax dollar subsidies aka corporate welfare. Many USA corporations pay no taxes on profits of products made abroad UNLESS that money finds it's way back into the USA.....fat chance anyone will monitor that activity.

Remember the Bermuda Tax Dollar Triangle where all that is required is a post office box.

#### devobrun 7 years, 2 months ago

Nice collection of numbers, Mr. Pauls. But tax code is far more ridiculous than just a few rates.

http://news.yahoo.com/s/ap/us_tax_cuts_goodies;_ylt=Ah59s1mTV1C6R8SI6jSbr8Ss0NUE;_ylu=X3oDMTNraWhrbTV1BGFzc2V0A2FwLzIwMTAxMjI0L3VzX3RheF9jdXRzX2dvb2RpZXMEY2NvZGUDbW9zdHBvcHVsYXIEY3BvcwMzBHBvcwMxMgRwdANob21lX2Nva2UEc2VjA3luX3RvcF9zdG9yeQRzbGsDbmV3dGF4bGF3cGFj

Tax law is the government's tool for extracting money from various societal sectors. Tax codes are vast, byzantine, and corrupt. Take from one group and give to another. Hire a lobbyist and you too Mr. Pauls can have what you think is fair.

Fair? We are way past the arcane notion that taxes, government, or political power is ever fair.

Taxes are never fair. The concept is a lie. Taxes are negotiated political power. Rates are just one part of a massive scam.

#### just_another_bozo_on_this_bus 7 years, 2 months ago

"Taxes are negotiated political power."

And in this political system, the more money you have, the better the negotiating position. Which is why in our capitalist economy (one that is, by definition, unfair) the tax code is quite fair to the wealthiest among us, and for the rest of us, not so much.

#### just_another_bozo_on_this_bus 7 years, 2 months ago

"We don't have a capitalist economy bozo."

We have a mixed economy, but it's primarily controlled by corporatists who describe themselves as capitalists.

"Don't you remind me of that every time we talk?"

What? I believe it's the other way around.

" Unfair is receiving without earning, a staple of the big government programs you worship."

There are all sorts of ways to receive without actually earning, and by far the most profitable ways don't involve the sorts of government programs that I tend to favor.

#### devobrun 7 years, 1 month ago

If this were a capitalist economy, Iowa corn farmers would simply grow a crop and sell it. But the ethanol subsidies and the conservation programs wouldn't exist and they do. And the Sierra Club and the local Methodist Church would all pay taxes, but they don't. And taxes would be fair because everybody would pay them. But they don't.

#### just_another_bozo_on_this_bus 7 years, 1 month ago

A pure "capitalist" economy has much in common with a pure "marxist" economy, as well as with perpetual motion machines. They look good on paper, but in practice, are impossible to implement and/or maintain.

#### bisky1 7 years, 2 months ago

corporations don't pay taxes merrill, they collect them

#### Jimo 7 years, 2 months ago

You wife lucked into a \$17k commission and you're whining because someone points to various tax facts? (Facts you don't bother to dispute.) At Christmas time?

From the radio this week, the Jackson Browne classic:

We guard our world with locks and guns And we guard our fine possessions And once a year when Christmas comes We give to our relations And perhaps we give a little to the poor If the generosity should seize us But if any one of us should interfere In the business of why there are poor They get the same as the rebel Jesus

#### jafs 7 years, 2 months ago

Paying 50% of earned income in taxes seems a bit high to me.

May be the first time I've ever agreed with TS on anything.

#### bad_dog 7 years, 1 month ago

Assuming all or parts of the tale are believable, jafs.

it's not like TS has a bias or anything...

#### mom_of_three 7 years, 2 months ago

but when you file your income taxes, assuming you have other deductions and write offs, you may get some of that back, do you not????

All the LTE was saying is that taxes do not seem to be proportioned fairly. It would make sense that those who make more would pay more, but that is not the way it is.

#### mom_of_three 7 years, 2 months ago

but when you file your income taxes, assuming you have other deductions and write offs, you may get some of that back, do you not????

All the LTE was saying is that taxes do not seem to be proportioned fairly. It would make sense that those who make more would pay more, but that is not the way it is.

#### gudpoynt 7 years, 1 month ago

Tom, my unemploymed wife and I (also unemployed) along with our four, publicly educated children, thank you and your wife dearly for the foodstamps, free school lunches, and Medicaid. I always pegged you as a curmudgeon, but it's nice to see that deep down, you're just a big softie.

#### rse1979 7 years, 2 months ago

"I am puzzled that none of these elected officials include the FICA tax on income when debating this issue."

Actually, the recent tax bill also included a 2% reduction in the employee share of the Soc. Sec. rate for 2011 (4.2% instead of 6.2%).

Also, even though your example may result in higher marginal rates for the married couple, the single person will still pay a higher average rate because the brackets are larger for married vs. single. Perhaps you should do as you suggest and actually "do the math".

#### devobrun 7 years, 1 month ago

Because then a 15% bracket looks like 27%. The truth is in how it is told, rse.
Truth is defined in modern times as what people believe and when they are told 15%, they believe it. Oh, and the 6.2% that is matched by your employer is a 12.4% tax. It doesn't matter if the employer gives you the money before you give it to the government or not. Either way it is money available for you that goes to the government.

The deception is constant, endless and appalling. How can people vote for politicians all the time?

How can they go to rallies and cheer for these scoundrels? It is both parties. It is everybody in politics. It will not end. People love it. They are afraid and want somebody to take care of them. So the politician does and the terrible treatment of the populace is accepted because daddy government is mean, but he takes care of them.

#### Godot 7 years, 2 months ago

Garbage in, garbage out. The tax rates cited in this letter apply to income after deductions and are then offset by credits. A married couple earning \$16,700 will not pay 10% tax; they will likely have a negative tax rate.

#### just_another_bozo_on_this_bus 7 years, 2 months ago

"A married couple earning \$16,700 will not pay 10% tax; "

But they are struggling to survive before taxes are paid, and struggling even worse after paying them, while their employers are likely well-to-do before taxes are paid, and still well-to-do even after paying taxes.

The notion that the poorest among us are scamming the system is nothing more than an unsupportable exercise in Schadenfreude.

#### just_another_bozo_on_this_bus 7 years, 2 months ago

If "success" comes because of exploitation of those who work for you, then your success is neither earned nor deserved.

#### jafs 7 years, 1 month ago

This subject needs more distinctions.

The wealthy don't suffer from a lack of political involvement and power, in my opinion.

There are various kinds of businesses, and various kinds of employers and employees. Ideally, both value each other, and work together. Unfortunately, this is rare in my experience.

Obviously, a small coffee shop is going to operate quite differently from a large corporate business.

Let's take an example to clarify the difficulties - let's say that someone buys a business, and invests financially. They then hire a variety of employees to manage and run it, and have no direct involvement in the day to day operations.

Does the investor play a role in the business? Of course - without their investment the business wouldn't exist.

Do the employees, at all levels, play a role in the business? Of course, without them, the business couldn't function and succeed.

The problem comes when deciding how the various players should be compensated for their contributions - in our society, we seem to value the money guy more than the employees.

Your comment, by the way, tends to support my view that employees are a major factor in business success - if they weren't, it wouldn't matter what kind of employees you have.

It's also interesting to note that your comment about an "honest day's work" implies that the employer gets to decide what that is.

#### jafs 7 years, 1 month ago

Again, more distinctions are necessary.

Some entrepreneurs risk their savings and/or take out loans - others have enough money to invest without risking their own well-being.

The example was for clarity - but I remember you calling the CEO's employees, not entrepreneurs. Thus the folks running the companies aren't the entrepreneurs.

When you hire a professional, you have a specific contract - they do an agreed upon job for an agreed upon amount of money. The situation is much less clear for many employees, who don't have an agreed upon set of tasks per day. Some do, of course.

If employees weren't important, and thus didn't contribute much to a businesses success, then it wouldn't matter if they were good or not. The fact that it matters supports my view.

How much more should the investor make than the employees? What is that figure based on? And why do you think that investing one's money is so much more valuable than providing labor?

I have already said I think that both provide something of value - the difficulty comes in assessing compensation.

You seem to have lots of love for entrepreneurs, and none for employees. If you had a business which failed, do you blame that on the employees? Perhaps your decisions were to blame instead, including hiring and compensation decisions.

#### jafs 7 years, 1 month ago

I'll start at the end - "laws of economics" are not akin to "laws of physics" given that economics, by your own admission, is a rather soft science.

Without hard working employees, no business will succeed (or even function) regardless of the acumen of the owner.

You have in fact said that employees are replaceable, just "run the machines", etc. and simultaneously idolized entrepreneurs - those are value judgments, ones which value owners and investors much more highly than workers.

I neither love nor hate entrepreneurs - I recognize that both investment and work are necessary to run a business, and think that our culture tends to devalue employees (as you do).

Whether Facebook is some sort of great thing or not is open to debate, in my view, as are many of today's toys.

#### jafs 7 years, 1 month ago

Ok.

Keep thinking you're right and everybody else is wrong.

#### jafs 7 years, 1 month ago

And, soft sciences don't produce absolute knowledge of immutable laws - that's not how they work.

The reason you can't talk to me for very long is that you have some sort of deep need for certainty that is connected to your economic theories, but they don't support that sort of certainty, and our conversations tend to reveal that fact.

#### just_another_bozo_on_this_bus 7 years, 1 month ago

This stretch of discussion has to be your greatest display of Free-Market religiosity yet, LO

Your absolute worship of the Entrepreneur, coupled with your absolute disdain for employees indicates to me that you really have no idea what goes on in the real workaday world.

In the real world, some entrepreneurs are the ideal creative geniuses you imagine all to be. Others are exploitive jerks with no redeeming qualities. And the vast majority are some combination of both.

Also in the real world, some employees are dishonest slackers who take advantage of every opportunity to rip off the employers as you accusingly insinuate. But the vast majority show up to work every day with the intent to do as good a job as they can, with the expectation that their efforts will be appreciated, financially and otherwise.

All of which makes one fact is quite clear-- once an "entrepreneur" has determined that in order to advance their business they need employees to accomplish that advancement, they must relinquish any illusions of Godliness.

That doesn't mean that they owe workers employment for life, or that they can't fire employees who don't perform well, but they must treat and compensate their employees fairly, and openly acknowledge that the accomplishments of the company are now group, not individual accomplishments.

And I can guarantee you that Facebook is not an individual accomplishment. Remove just their lowest paid employees for a couple of weeks (secretaries, janitors, etc,) and the whole thing could grind to a halt.

#### just_another_bozo_on_this_bus 7 years, 1 month ago

"Remove them and they'll be replaced the next day by equally competent employees."

A total dodge of the point-- namely, that the "entrepreneur" is quite dependent on the labor of others, even the most mundane and unskilled variety, to accomplish anything, thus, undeserving of the divine status you want give them.

BTW, I don't hate capitalism. But neither do I believe that we should all be so committed to it that it devolves into a worship of hierarchical, quasi-monarchial structures, as you do.

#### camper 7 years, 2 months ago

Well the Bush tax cuts have been extended apparently. Regardless, a 3% increase on net income (after all business deductions) over 250k is chump change and hardly an inhibitor to new investment. For instance, if you had a real good year and had taxable income of 500k, your extra taxes would have been \$7,500. Seems like a good problem to have. Even at that, during negotiations, a level of 1 million was proposed. But the Republicans said, " A raise of taxes during this economy on any Americans" would be unwise. OK. Unless some other areas of cuts are proposed, this extension is going to cost 900 billion over the next ten years. Somehow this does not seem wise.

Those netting 250k a year are probably less than than 2% of the population, and those over a million has got to be much smaller. Over the holidays I went into the bubble of wealth where most of my family and friends habitate. They are baby boomers who did well. They hate Obama, are sitting on a nice retirement, watching the stock market, wonderin if it is going to be a good year, wonderin if they are going to go to Europe this year (which is somehow dependent on the stock market) , and yes they hate Obama, hate Socialism (tho they know not quite what it is, and lump any and all community efforts that do not fit the free enterprise model into it), hate gays in the military, don't like young folks much, and want to hang on to what they have. In their mind, everyone has the same opportunity as them. They do not understand someone who does not have a large retirement fund, who can retire at 50, who has mutual funds that they monitor while playing golf. They listen to Rush Limbaugh. They make racist remarks in the clubhouse, then give the bartender a big tip and a couple hundred bucks for Christmas. Theys say they put that man's daughters thru college. Then talk bad about minorities after bein served. Talk bad about immigrants. Quote Limbaugh, or whoever is subbing for him during the holiday break. And did I say they hate Obama?

Well all I can say is "they got there's" good for them. They are in a bubble that they don't want to come out of and are quite protective of what they got.

But by the same token. The younger folks are going to have to work and be diligent in achieving. All things equal, they will achieve, and be in a similar place, god willing. Once you are done working, done with minimum wage, apprenticship, mid management, upper management, we might join the ranks of these old farts with an empty head.

God I hop not. But this is the way it is.

#### bisky1 7 years, 2 months ago

tom, where do you get those lucky \$17,000 commissions, i would like one myself.

#### George Lippencott 7 years, 1 month ago

TomShewmon (Tom Shewmon) says… "Let's get down to realistic, nuts and bolts, in your bank account gross vs. net money that has been earned.

My wife's last commission check was app. \$33,000.00. She was able to keep app. \$17,000.00 of it. I, nor does she have sympathy for whiner have-nots. "

Tom, I am still having a problem as to just who are the "rich" who are not paying enough.

The left on here seem to think it is anybody that makes more than they do - having chosen an occupation (hippy, barmaid, social service provider, other low skill job - if employed) that pays little. That would mean you, me, many assistant professors at KU (not to mention police and fire, schoolteachers and on and on) are rich. Really kind of stupid definition. Alternatively, is the definition driven by greed associated with more for the lefties??

I also think our lefties friends view the world from a position of relative youth. They conveniently forget that income grows with time and that whatever they are making now will likely increase (perhaps significantly) as they age. Why should a couple who have worked for a combined 30 years in professional jobs not make \$100K plus a year??

As far as your math. The maximum marginal rate (federal) is 35% so the withholding on your wife’s commission appears excessive unless you are including other taxes. If so, as observed by the author, she is paying about 13% FICA, 4% Medicare/Medicaid and 6% to the state. If you are actually in the 35% bracket (combined income >\$350K) that would mean that her total effective tax payment would be about 50%. Not exactly small and consistent with your math.

Me thinks that many of our lefties on here forget that as far as FICA the limit applies individually so that a combined income of up to \$212 K is taxed (equal income assumed). Medicare and Medicaid have no limit, as state tax does not. Are you really rich at an income around \$350K?? My data suggests you are in the top 1%.

I think the left just avoids dealing with any specificity as to who should be taxed more. That additional 3% on you and the rest of the 1% really brings in only about \$7B a year - hardly enough to pay for all the largess already on the books without a need to whack many other people.

If we take the upper middle (two professional incomes (teacher and middle management) with a combined income of about \$130K the tax rate (not marginal rate) today is about 40%. If we add in sales and property taxes on a \$250K home, we reach a tax rate approaching 45%. Add to that the hidden taxes/income transfer payments on everything from utilities to paint for the home and we are in the neighborhood of 50%. To pay for Mr. Obama's largess we would be looking at around another 5% to 10% or so federal - 55 – 60% of there income - and they receive little or nothing in the form of goodies in return.

Gee, our leftie neighbors are sure considerate - or just very greedy??

#### Tony Kisner 7 years, 1 month ago

Actually if the income is passive like rents for example it is not subject to fica.

#### notajayhawk 7 years, 1 month ago

Well, it's pretty apparent that many people - including the LTE writer - don't have the faintest idea of the difference between income taxes and payroll taxes (FICA and Medicare).

The FICA taxes are not GR funds. They do not pay for roads being built, the maintenance of our armed forces, etc., in the way that income taxes do. It is moronic to say that someone in a lower tax bracket pays more when you include Social Security taxes; it makes as much sense as saying the people in the lower bracket pay a bigger chunk of their pay check when you take into account health insurance or life insurance deductions, or United Way contributions.

While the Supreme Court ruled decades ago that they are indeed taxes and the people paying them have no ownership right to the money, in reality it IS paid back, much like a savings account. Collecting more from anyone only means you pay out more later on. FICA tax receipts are invested in special treasury bonds that the retirement system cashes in - with interest - when it's time to pay out retirement benefits. The more that's collected, the bigger the national debt and the deficit.

Seriously, people, try learning a little about the things you try to comment on.

#### George Lippencott 7 years, 1 month ago

Well, you can cap benefits and tax everyone aLL THE WAY UP. Help solve the problem that there is no fund and we will have to use general revenue to pay it all back starting in a years or so. The lower end of the boomers will pay social security and higher taxes to make good on the trust fund we spent.

The system wrt my magical couple may well not pay back all of their and their employers contributions plus imputed interest. It generally pays back more than that at the low end of the income scale (income transfer) So your argument is not totally accurate.

The argument that getting out of the SS business actually helps the rich and upper middle (invest their own) while hurting the poor who can not invest what they do not have.

#### notajayhawk 7 years, 1 month ago

"Well, you can cap benefits and tax everyone all the way up."

Then it's not a FICA tax any more, is it? If you want to raise taxes to pay for more welfare programs, then get enough people to agree with you and do so. Just don't BS everyone and say it's some kind of 'fairness' in the payroll tax system.

#### George Lippencott 7 years, 1 month ago

NAJH

The notion it is a FICA tax as oppoeed to a tax tax is mearly avoiding the obvious. The money has gone into the general fund and the courts have determined there is no ownership right to FICA payments. The whole mess now arrises because the general fund must pay back the "FICA": (trust fund) and to do so will require tax increases. Like this is a surprise?? Where have the Republicans been all these years?? The best5 they offered was privitization of a portion - that would in no way have avoided the bill and might have protected the weell off from the consequence qwe may all have to face.

#### George Lippencott 7 years, 1 month ago

If you means test the system in the future what happens to support for it. The original reason it was structured as it is was to garner political support. Why would anyone support it if they get to pay in what Ithey do now but get back a small fraction of what they have paid?? Careful where we head with this it is an income transfer program alrerady

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