In the Economic Policy Institute's daily Economic Snapshot for March 9, 2005, EPI's senior fellow William E. Spriggs misses the bigger tax picture in discussing the cap on income upon which Social Security taxes may be assessed.
Arguing that "we have perversely lowered the tax burden for the highest-earning 6% of America," by not assessing Social Security taxes against earned income above $90,000 (for 2005), Spriggs disregards the progressive rate structure of the federal income tax system. One would expect that if Spriggs' argument held water, we would see a dip in the percentage of taxes paid relative to income for those earning more than the Social Security taxable income cap. Instead, we see that there is no such dip (see the table for Sample Annual Taxes for Various Income Levels) in the total tax burden for higher income earners, and in fact, these individuals' total tax burden as a percentage of total federal payroll and income taxes paid against their income rises as their income increases.
If I'm being honest, to quote Simon Cowell, I was surprised at this outcome. I did expect to see a dip in total tax burden around the area where the Social Security taxable income cap kicks in. Instead, it seems that instead of paying more taxes into Social Security, higher income earners are paying considerably more into the U.S. Treasury's general fund.
I know Arnold Kling has argued that mathematics should not be a focus for higher learning in economics, but here's a perfect example of where running some numbers could have saved some embarrassment.
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