4 ms·

Isn't sales tax a local government thing? I didn't think it applied at the federal level, save for very specific items like cigarettes. Also, what do you mean

Isn't sales tax a local government thing? I didn't think it applied at the federal level, save for very specific items like cigarettes. Also, what do you mean by "payroll tax"?

mikeash 9y ago
Yes, sales tax is not federal. It's still a tax that people pay. To talk about "95% of taxes" and exclude sales tax is dishonest. Payroll tax is the Social Security and Medicare taxes. It's 15.3% up to $127,200/year with no deductions (i.e. the very first dollar you earn is taxed at that rate), then it drops to 2.9%. People typically don't realize how much it is because it's split into an employee and an employer half. The number printed on your paycheck will only show a 7.65% rate, but the employer is also paying another 7.65%.
- derekp7 9y ago
  Question: If there was no employer side of FICA, is it likely that employees in the bottom 80% get a higher paycheck, since the employer has more money available? Or would most businesses invest that in other areas? Because otherwise you can also consider all other corporate taxes as taxes on employees, because without them there is more that they can spend on payroll. Edit: I'd also like to explore what would happen if the entire 15% is invested in a 401k equivalent instead of receiving social security / medicare, how much more the average person would get in retirement.
  - mikeash 9y ago
    I think payroll taxes are different from other corporate taxes in that they are a direct tax on wages, and thus directly increase the business's cost of labor. Businesses don't really care what part of their labor costs are taxed on their end, what part is taxed on the other end, what part goes to various benefits, etc. They just care that it costs them $X for a given employee. It is quite possible that reducing the employer side of FICA wouldn't translate into a 1-to-1 higher paycheck, or even any increase at all. But the same is true of the employee's side, or of regular income tax, or any other tax.

Isn't sales tax a local government thing? I didn't think it applied at the federal level, save for very specific items like cigarettes. Also, what do you mean by "payroll tax"?

mikeash 9y ago

Yes, sales tax is not federal. It's still a tax that people pay. To talk about "95% of taxes" and exclude sales tax is dishonest. Payroll tax is the Social Security and Medicare taxes. It's 15.3% up to $127,200/year with no deductions (i.e. the very first dollar you earn is taxed at that rate), then it drops to 2.9%. People typically don't realize how much it is because it's split into an employee and an employer half. The number printed on your paycheck will only show a 7.65% rate, but the employer is also paying another 7.65%.

derekp7 9y ago
Question: If there was no employer side of FICA, is it likely that employees in the bottom 80% get a higher paycheck, since the employer has more money available? Or would most businesses invest that in other areas? Because otherwise you can also consider all other corporate taxes as taxes on employees, because without them there is more that they can spend on payroll. Edit: I'd also like to explore what would happen if the entire 15% is invested in a 401k equivalent instead of receiving social security / medicare, how much more the average person would get in retirement.
- mikeash 9y ago
  I think payroll taxes are different from other corporate taxes in that they are a direct tax on wages, and thus directly increase the business's cost of labor. Businesses don't really care what part of their labor costs are taxed on their end, what part is taxed on the other end, what part goes to various benefits, etc. They just care that it costs them $X for a given employee. It is quite possible that reducing the employer side of FICA wouldn't translate into a 1-to-1 higher paycheck, or even any increase at all. But the same is true of the employee's side, or of regular income tax, or any other tax.