Newspaper article THE JOURNAL RECORD

A Big Factor in the Earnings Gap

Newspaper article THE JOURNAL RECORD

A Big Factor in the Earnings Gap

Article excerpt

NEW YORK -- Many factors are involved in the growing disparity between top earners and those in the bottom 20 percent, but one factor often is omitted when discussing the rest. It is taxes.

No sensible discussion of the growing gap can exclude after-tax pay, or discretionary income, since that is what makes the difference in lifestyles. To exclude taxes is to ignore reality.

The omission is especially flagrant in the oratory of elected officials seeking points with the electorate. They blame discrimination, education, automation, the demand for higher skills and a long list of other factors, but omit the high tax bite on low incomes. Low incomes are treated harshly by the payroll tax, since it is levied on the very first dollar of earnings. It means that a minimum- wage earner must pay 15.3 percent on every dollar earned -- 12.4 percent for Social Security and 2.9 percent for Medicare. Only 6.2 percent of the Social Security tax appears on the low- income earner's pay stub, because the 12.4 tax is nominally split between the wage-earner and the employer. But economists agree that the full burden devolves to the wage-earner as lowered income. It is only the poor and some middle-class earners who pay the full payroll tax on their incomes, because the tax ends when earnings rise beyond $68,400. Those earning beyond that point, including the wealthiest earners, cease to be additionally taxed. In this way, the Cato Institute's Stephen Moore points out, middle-income and poor taxpayers can face higher marginal tax rates than the highest- income taxpayers. For example, a single worker earning $26,000 falls into a 28 percent federal income tax bracket, and also pays a 15.3 percent payroll tax. Not to mention paying less visible but costly taxes, such as on gasoline. The federal gasoline tax has tripled since 1980. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.