February 22, 2012
Two days after Congress passed its extension of the payroll tax cut through the rest of 2012, The Washington Post sounded a page-one alarm about the “Taxmageddon” that looms when the measure expires next year. Starting then, the current 10.4 percent payroll tax will rise to its usual 12.4 percent. At the same time, the Bush-era income tax cuts will expire, raising the top marginal rate from 35 percent to the Clinton-era 39.6 percent (and possibly, if Congress refuses to cut a deal with President Obama, raising taxes on the middle class, too). A little-known Medicare tax increase for high earners, instituted to help pay for Obamacare, is also due to kick in. The combined result, the Post’s Lori Montgomery warned, will be “one of the biggest tax increases in U.S. history.”
This is an utterly phony crisis. Assuming the recovery gathers strength, raising taxes next year to lower the deficit will be an absolute necessity. But there is one fairness problem: The payroll tax increase will fall disproportionately on people with lower incomes. Indeed, the tax, which funds Social Security, is almost criminally regressive, with a flat rate and a ceiling (currently $110,100) above which no tax is paid.
Read entire article on The New Republic