NCPA - National Center for Policy Analysis

EMPLOYMENT TAX EVENS THE TAX BURDEN

July 22, 2004

While the rich pay a disproportionate share of all federal income taxes, the employment tax "Medicare and Social Security contributions -- evens out the overall tax burden," says author Scott Burns.

  • Because once your earned income exceeds the wage-base maximum -- $87,900 this year -- only the 1.45 percent employee portion of the Medicare tax comes out of the paycheck.
  • The 6.2 percent taken for Social Security stops coming out.

As a consequence:

  • A household with a taxable income of $58,100 can pay taxes at a marginal rate of 32.65 percent (25 percent federal income tax rate plus 7.65 percent employee portion of the employment tax).
  • A household with six times the income pays taxes at a marginal rate of 36.45 percent (35 percent top marginal tax rate plus 1.45 percent Medicare portion of the employment tax).

For the self-employed, the gap in the tax burden shrinks even further among different income groups, says Burns. Those who are self-employed see the full burden of the employment tax, paying all 15.3 percent. Thus, the $58,100 household pays taxes at a 40.3 percent rates, but a household with six times the income pays at a lower marginal rate of 37.9 percent.

 

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