The Thinker: Rich Galen


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Mullings by Rich Galen
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The Payroll Tax

Rich Galen

Monday January 14, 2013


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  • The big hoo-hah over taxes we had to suffer through last month had to do with income tax rates and some specialty items that largely attached to corporations.

  • As you may know if you've ever made the mistake of saying "about half of those who work pay no taxes at all" in front of a Liberal, everyone who shops pays sales taxes, everyone who drives pays gasoline taxes, and everyone who works pays � payroll taxes.

  • Payroll taxes, as the term is typically used, are those you pay into the Social Security system (officially known as Old-Age, Survivors, and Disability Insurance and Medicare (officially known as Medicare's Hospital Insurance program - Part A).

  • Taken together, these are known as "FICA" taxes for the Federal Insurance Contributions Act that authorized them.

  • Under current law you (and your employer if you are not self-employed) each pay 6.2 percent of your gross pay into the Social Security program up to $113,700 of income. After that you're off the hook.

  • You and your employer also each kick in an additional 1.45% to fund the Medicare Part A (the hospitalization part) up to � forever. There is no income cut off.

  • In fact, I believe, that at the $250,000 family income level you will pay an additional 0.9 percent into the Medicare program even though you will not get any better medical care for the price of it.

    Note: You know better than to take tax planning advice from me. Your Mileage May Vary.

  • Put these two taxes together and - bibbidy-bobbidy-boo - what do your get? 15.3 percent of your income goes to the Feds. In addition to whatever income taxes you might be paying.

  • If you have a job on which your employer withholds taxes, you each pay half: 7.65%. But if you are self-employed, as in being a contractor rather than an employee - you pay the whole 15.3% out of your pocket.

  • All that as predicate to what you will find - or have found if you've received your first paycheck of 2013 - the payroll taxes have gone up and the amount in what we used to call your "pay packet" has gone down.

  • Part of the deal the Congress and the President reached ended what was known as the "payroll tax holiday." As part of the panic to avoid a full-blown depression, it was decided that it would be a good idea to reduce the Social Security tax by two percentage points: From 6.2 percent per payer to 4.2 percent per payer.

  • The loss to the Social Security fund were to be made up by transfers from the general fund.

  • I'll wait until you stop screaming at your computer screen. I know the general fund is about $16 trillion in debt. I'm just the messenger.

  • Anyway this increase in payroll taxes will be noticed by most of us. According to Neil Irwin writing in the Washington Post,
    For someone who makes the U.S. average for private sector workers of $818.69 a week and is paid every other week, that adds up to a reduction of $32.75 in each paycheck. For higher earners, anyone making over $113,700 annually, each bi-weekly paycheck will decline by $87.46.

  • Nearly everyone in official Washington agrees this is good policy, but Fox News interviewed a young woman who was incensed at the increase. She wailed about the macro-economic disaster this return to normal rates portends:
    "This is an impediment for future economic growth. It's going to make it harder for young people like myself to get married, find a better job, you name it," she said.

  • But a little later in the article, reporter Joshua Rhett Miller, zeroed in on the whole "future economic growth" issue when he wrote that the young woman,
    "admits the hike won't completely alter her spending, but the [recent college] graduate said she will definitely have it in mind when it comes to leisure activities and entertainment."

  • An additional housemate for the beach house this summer? Oh, the horror.

  • But she is correct in this regard: Just about every Member of the House and Senate; the President and Vice President; the Treasury Secretary and the Fed Chairman all bellowed that we needed the fiscal cliff deal to avoid raising taxes on every single working American.

  • After, as Shakespeare wrote "all the sound and fury, signifying nothing" over income tax rates, they, indeed, raised taxes on every single working American.

  • Nicely played.

  • On the Secret Decoder Ring page today: Links to the Fox News and Washington Post articles as well as the full "sound and fury" quote.

    Also an amusing Mullfoto from my favorite village, Old Town Alexandria, Virginia.

    -- END --

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