Our Growing Reliance on Payroll Taxes
Posted at noon on Nov. 29, 2012
Owen Zidar explains how linking the payroll tax to Social Security and Medicare Part A has led to a growing reliance on the revenue from that tax.
“The number of disability recipients has increased nearly sixfold since 1970. Disability outlays exceeded revenues by roughly $34 billion in 2011… Pressure on the payroll tax from Medicare Part A is even worse. Health cost growth has steadily outpaced inflation, and the pattern shows no sign of abating.”
“The primary argument for severing the link between these growing programs and the payroll taxes is that the tax is regressive: It uses a flat rate on incomeup to $110,100, does not apply to most income above that threshold and does not apply to nonlabor income, like capital gains. Because of this relatively regressive nature, payroll tax cuts tend to be a more effective stimulus than typical income tax cuts – and thus are a more effective way for Washington to respond to recessions.”