Saturday, November 30, 2002

Payroll Tax Tilts Burden
Onto Poor, Middle Class

By focusing exclusively on the individual income tax, your Nov. 20 editorial "The Non-Taxpaying Class" was extremely misleading.

While you mention payroll taxes in passing, every one of the statistics you cited that seeks to argue that the rich pay a disproportionate amount of the tax burden failed to account for the payroll tax burden, which increased dramatically over the past 20 years for the poor and middle class.

Almost as much revenue is now raised under the regressive payroll taxes as is raised under the individual income tax, whereas until 1963 the individual income tax raised more than twice as much revenue as the payroll taxes. The payroll taxes are paid chiefly by the poor and middle class. They are imposed only on labor income (not capital income, which is concentrated in the wealthiest households), there are no personal exemptions or deductions, and wages and self-employment income above about $85,000 are subject to tax at only a 2.9% rate, while labor income below that amount is subject to tax at 15.3%, thus concentrating the tax on lower and middle class workers.

When both payroll taxes and income taxes are considered, those households with income below $50,000 per year (about the median income) have seen their aggregate federal tax burden increase (not decrease, as you imply) between 1979 and 1999, while upper-income households experienced a tax decrease. These numbers will become even more pungent when the phase-in of the 2001 tax act, which decreases marginal income rates for the wealthy and repeals the estate tax, is complete.

The top 1% of wealth holders now own nearly 40% of private wealth in this country, while the bottom 95% own about the same amount. Yet, the top 1% pays less than 20% of the aggregate federal tax burden, when all taxes are considered (including the regressive payroll taxes), not only the individual income tax, on which you myopically focus.

Deborah A. Geier
Professor of Law
Cleveland-Marshall College of Law
Cleveland State University