School me: Why have tax collections steadily shifted from corp. income to payroll taxes?

The Coffee Shop
21

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.

Actually, individuals do have control over at least the federal income tax that is withheld from their paycheck, through the claiming of dependents on their W-4.

Fact of the matter is, a large percentage of the payroll taxes may be paid back to the employee when they file their return in the form of refunds. Remember too, that in terms of the non-income payroll taxes, the employer and employee split that obligation, but I do not see that included in the corporate tax line in this chart.

22

Correct me if I’m wrong, but does payroll tax simply translate to SS and Medicare?

Payroll tax includes all taxes related to “Payroll”, or anything paid out as payroll. This includes SS/Medicare/Medicaid, both sides employee and employer as well as federal income, state income etc etc. Basically everything taken from your check that goes to the government on both the employers and employee side.

This is different from “Income tax” in that “Payroll” does not include capital gains paid but “payroll tax” DOES include income tax paid via a payroll check.

**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? **

Payroll tax would increase for all sorts of reasons ranging from higher income, higher tax rates etc.

This graph starts in 1950, at that time the total SS/SSDI/Medicare tax rate was 3%, including both portions. Today that number is 15.65%.

You’re looking at a 521% increase in a tax that effects everyone and almost 100% of most peoples income that comes with almost zero deductions or loopholes.

This tax also is not paid by corporations.

It may also correlate that the rate in 1984 was 14%, not much different than it is today. So from 1950 thru 1984 there was pretty significant increases in this tax shifting the burden more onto the “Payroll”. From 1984 thru today there has not been that much of an increase. 1950-1984, 34 years 366% increase. 1984-2011, 27 years, 11.7% increase.

~Matt

23

Okay. Those dates make sense as the graphs seemed to have, more or less, flattened out after the mid 80s.

24

Okay. Those dates make sense as the graphs seemed to have, more or less, flattened out after the mid 80s.

Corporate tax is going to go up and down according to the economy and kinda like the graph shows almost inversely to payroll tax.

If the economy is good, profits will be up, more Corp tax which will inherently drop payroll tax as a percent of the whole. “Income tax” as a whole will likely also go up, probably less than corp, due to larger “Capital gains” tax.

It might also be interesting to see the “Payroll tax” laid up against Medicare/SS/Medicaid expenditures.

SS was 14,365B in 1962. Adjusted for inflation that would be 102,388B in 2010, Actual spent was 706,373B.

Medicare was Zero on 1950. First major year of medicare was 1968 at 4,649B. Adjusted for inflation that would be 32B in 2010, actual was 451B.

~Matt

25

Did you read my post? It explains what payroll taxes are. They do not include income taxes. They include the full security taxes fica ficm, withholdings for railroad pension and government pension and unemployment taxes. Not all of these existed in 1950 so some of these are added over the years. And ssn tax rates have went up.

I’m sure there’s other factors too.

Correct me if I’m wrong, but does payroll tax simply translate to SS and Medicare?

Payroll tax includes all taxes related to “Payroll”, or anything paid out as payroll. This includes SS/Medicare/Medicaid, both sides employee and employer as well as federal income, state income etc etc. Basically everything taken from your check that goes to the government on both the employers and employee side.i

This is different from “Income tax” in that “Payroll” does not include capital gains paid but “payroll tax” DOES include income tax paid via a payroll check.

**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? **

Payroll tax would increase for all sorts of reasons ranging from higher income, higher tax rates etc.

This graph starts in 1950, at that time the total SS/SSDI/Medicare tax rate was 3%, including both portions. Today that number is 15.65%.

You’re looking at a 521% increase in a tax that effects everyone and almost 100% of most peoples income that comes with almost zero deductions or loopholes.

This tax also is not paid by corporations.

It may also correlate that the rate in 1984 was 14%, not much different than it is today. So from 1950 thru 1984 there was pretty significant increases in this tax shifting the burden more onto the “Payroll”. From 1984 thru today there has not been that much of an increase. 1950-1984, 34 years 366% increase. 1984-2011, 27 years, 11.7% increase.

~Matt