I’ve seen this chart a handful of times the past few months, and I’m just trying to get some clarity over what I’m exactly looking at…
Any thoughts on how I should be reading this? My first inclination that corporations are increasingly tying taxes more to headcount than to performance doesn’t seem to hold water after re-reading the title… so now I’m confused. I’m really hoping it’s not a simple reason that is escaping me right now…
Thanks!
It’s obvious, reduced corporate taxes has generated more jobs and more payroll taxes.
Or the nature of work has changed. We are more service oriented requiring businesses to utilize people vs capital to make money with lower profits.
I can’t say for sure, but I’m some of it has to do with the fact that corporations are now finding loopholes, hiding money off shore, etc…
It’s a lot harder to get around payroll taxes.
…We are more service oriented requiring businesses to utilize people vs capital to make money with lower profits.
I’m curious if outsourcing manufacturing has meant that we’ve moved the non-payroll related expenses to offshore P&Ls leaving the service end of the stick in this country, so the percentage has ultimately flip-flopped? I didn’t think that the outsourcing was that big of a ‘hit’
reduced corporate taxes has generated more jobs
More jobs???
I would be curious to see the following items added to that chart (not certain what it would show, but, I have a suspicion):
I would be willing to bet that those numbers would increase at the same or higher rate as % corporate taxes decrease.
http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm
basically, congress kept raising payroll taxes.
Because my personal lobbyist sucks and their army of lobbyists don’t.
jamie
S corps and LLC’s.
Can you clarify? That’s not what I got from your link.
basically, congress kept raising payroll taxes.
doesn’t sound right based on the content of your link. It sounds like JSA is more correct with entitlement spending being the culprit.
“Payroll taxes swelled following the creation of Medicare in 1965. Taxes for Medicare, combined with periodic increases in Social Security taxes, caused payroll tax revenue to grow from 1.6 percent of GDP in 1950 to more than 6 percent since 1990. Payroll taxes also include railroad retirement, unemployment insurance, and federal workers’ pension contributions.”
So it seems that one of the main reasons is that taxes directly aimed at entitlements have skyrocketed as a % of income over the past 40-50 years. Here’s another link that supports that:
http://www.ssa.gov/oact/progdata/taxRates.html
I guess then if you combine that with stagnated wages over the past 30 years, you have a ridiculous drop in purchasing power across many, many families.
My theory:
Individuals have almost no control over their payroll taxes. Really only 2 options; ask your boss to cut your pay or max out the 401(k) and medical savings to reduce taxable income. Not alot of room to maneuver.
Corporations on the other hand have tons of room to control what their taxable income is and when they recognize income (ie moving it from this year to another year). They also have control over when certain losses are recognized. So, they can pair income and losses to show low or zero taxable income in many years. Companies have become much better at, and more aggressive at, minimizing taxable income. When tax rates were low, their level of effort put into avoiding taxes was less but these days, any well run company, from mom and pops on up to the largest, operates on the premise at any taxable income at the end of the year is regarded as a failure.
This chart, like many, has so many potential variables as to produce something that is worthless.
Income from entitlements, LLC/S corps, lower profits/higher income. The list of potential variables is pretty significant.
However I would guarantee that this chart is used to show how corporations are greedy and not paying enough.
~Matt
Individuals have almost no control over their payroll taxes. Really only 2 options; ask your boss to cut your pay or max out the 401(k) and medical savings to reduce taxable income. Not alot of room to maneuver.
Charitable giving, buying something on the list of “Good products”, Mortgage deduction, having kids…individuals have WAY more than “Two options” for lowering taxable income.
**When tax rates were low, their level of effort put into avoiding taxes was less but these days, any well run company, from mom and pops on up to the largest, operates on the premise at any taxable income at the end of the year is regarded as a failure. **
I can agree with this for the most part particularly if you can get credit and or have any cash. Better to spend cash on new equipment than hand over 15-35% of that cash to the government.
It’s even better to pay bonuses to employees, or hand out cash to stock holders in most cases than pay the tax.
~Matt
Another theory. No data but my hunch is that between 1950 and today, there was a significant movement among higher income folks from receiving income as partners/small business owners to wage earners paying taxes through payroll taxes. For example, my hunch is it was pretty rare in the 50’s for doctors, lawyers, high end engineers, Wall Street finance types etc, to be getting a paycheck with withholding whereas now days, that’s very common in these professions. Many high earners these days actually get paychecks whereas in the past, it was much more common for folks like that to have been partners in firms and gotten draws during the year and pay taxes as business owners, not through payroll decuctions.
The concept of why is actually pretty simple.
Corporations only pay taxes on profit. The simplified decision is at the end of the year the corporation has a choice. Take the profit and give 35% to the Feds, + State tax, or spend/reinvest it and pay no taxes.
To answer this I think we (or I) need to understand how payroll taxes were implemented. Correct me if I’m wrong, but does payroll tax simply translate to SS and Medicare? If so, how were those taxes implemented? Did everyone start paying right off the bat, or was there a phase in process?
The reason why I ask is that as I get older, my income increases and so do the payroll taxes supporting me. In addition, my income tax increases. However, as my salary increases, high salaried people retire and are replaced by low salried people (as backfill, while everyone shifts up in position and income). So the increase in an individual’s salary really has no bearing on the amount of income tax revenue brought in.
I’m wondering, however, if payroll tax revenue has increased as a result of the people contributing aging, or woul dthis also be a null effect?
I’m kind of in the same boat as BarryP
What exactly is Payroll tax. Clearly its not income tax, so is it just SS and Medicare?
Makes sense, but I think the level of payroll tax has remained pretty steady, and the chart indicates the relative increase, within the mix of govt receipts. I think another thing that has not been mentioned thus far on the corporate input is the tax code, and congress' use of same to drive corporate or consumer behavior. Over time there have been so many special carve-outs, tax policy designed to favor or punish for desired ends, and the lower levels of taxation via these rules are now widely enjoyed by corporate America. I'd imagine that some, maybe many, of these decisions I may have understood or agreed with at the time, but they get codified into tax law, and remain so, whether needed or not, and even if they become counter-productive.
When I hear “payroll tax” I think it means all taxes that are taken out of an employee’s check, including income taxes.
It does seem pretty rare these days to run across someone who works as an employee and gets a pay check with witholding who actually has to write a check to the IRS to pay taxes. I wonder if the percentage of folks who have to write checks versus pays the full tax bill through withholding has changed over the years?
Personnally, if my wife did not have her own business, I would rarely if ever have to write a check for income taxes despite paying a decent amount every year. I get a paycheck and withholding. She on the other hand has to write checks directly to the goverment. It definitely puts a different perspective on taxes. If it were up to me, I would do away with withholding and make everyone write checks. It would focus the mind.