A Tax Break for the Rest of Us
January 11, 2007
by William P. Meyers

Tax rates on high-altitude incomes in the 1950's approached 90%. Taxes were much higher then, than now, on capital gains and on dividends. While current income taxes are not trivial for incomes over $100,000 (they hit 25% for income between $30,650 and $74,200; 28% from there to $154,800; 33% for $154,800 to $336,550; and the top rate of 35% for incomes over that), they are pretty minimal both historically and compared to other nations.

In addition, for 2006 a single person gets a $5,150 standard deduction and a $3,300 exemption, so even the lowest rate, 10%, does not kick in until a person has earned $8,450.

What kills the paycheck of low wage workers is the Social Security tax (including Medicare). The total tax is 15.3% of income, but half is payed by the employer. So wage slaves see a deduction of 7.65% from their pay checks. If you are an independent contractor or run a small business like I do you get to pay the entire 15.3%.

I am not for weakening Social Security or Medicare. I think they are one of the few good things the Federal Government does. With a minimum wage debate raging, and with the Ruling Class tax cuts due to expire in 2010, I think it is time for a serious rethink.

If someone is trying to enter the work force they are likely to make around $10,000 their first year if they can find full time work (usually requiring two part-time jobs, neither of which pays health benefits). People in this situation pay $765 in Social Security tax. If they are starting a small services business they will pay $1530 in Social Security tax.

I propose giving an exemption to the bottom rung of taxpayers. In fact to all tax payers: a $10,000 exemption. So that Social Security tax kicks in for everyone at $10,000. This would include the employer's portion, which gives them an incentive to hire more workers.

Okay, that is a stagering amount of money to take out of the SS system, ballpark $225 billion a year. So how do you put that back in? First, you end the cap on SS tax. In other words, right now once you make $94,200 (okay, once some other guy, some rich guy, makes ...) the SS tax rate goes to zero. 0. Nothing. I'm proposing that it stays with you no matter how much income you report. In addition, it should be payed on capital gains and dividends.

[The satirical part of me wants to take the Ruling Class line that you don't have to do anything about this $225 billion a year tax cut. By cutting taxes you help the economy to grow, so within a couple of years you collect more taxes to make up the difference! If this ever becomes a nationally debated proposal watch how Ruling Class spokespersons argue that the case here is different. The Rich are not like us. Their tax cuts smell like roses, whereas tax cuts for the workers smell like, well, we are too too refined to name what falls into our gold-plated toilets.]

This proposal would be economically sound and yet much fairer than the current system. Hence the Democrats won't even debate it within their party. It is, as one says, a non-starter.

Which means we'll have to start it in our party. The Green Party.