Payroll Taxes Have Risen The Most

• Combined federal, state and local taxes have risen from 25 percent of total economic output in 1965 to 31 percent today.

• Yet the overall federal income tax take has remained at roughly 8 percent of the nation's output every year since the 1950s, despite wide fluctuations in the top tax rate.

• One area that has increased is state and local taxes, which now total nearly 11 percent of gross domestic product, up from about 8.5 percent in 1965.

• But the greatest proportionate increase has been in payroll taxes for Social Security and Medicare, which have more than doubled as a share of GDP from less than 4 percent in 1965 to more than 8 percent today.

Washington now collects about as much from payroll taxes as from the income tax; whereas 30 years ago payroll tax revenues were just half that of income taxes. Today, for two-thirds of all workers, payroll taxes exceed federal income taxes. And the dollar amount of payroll taxes paid by employees and employers has increased much more than its share of output -- growing from $25 billion in 1966 to more than $500 billion this year.

Unless Social Security and Medicare are restructured or benefits cuts, says Gleckman, there is little prospect of increasing workers' take-home pay by reducing the burden of the federal government.

Source: Howard Bleckman, "Why Income Tax Cuts Won't Lessen the Tax Bite," Business Week, September 30, 1996.