Thursday, April 02, 2009

How The Tax Burden Has Changed Since 1960


We have a new president, with a restless and far-reaching agenda — but how will the nation pay for that agenda?

For John F. Kennedy, elected in 1960, it was taxes and borrowing. For President Barack Obama, to whom JFK is often compared, the answer’s the same: taxes and borrowing.

But with the April 15 filing deadline looming, it’s worth noting that the tax system over which Obama presides isn’t the one workers knew two generations ago when Kennedy was entering the White House.

If you’re 70 today, you may have just retired, but do you recall that when you started working in 1960, making a beginner's wage, you paid only about $70 in payroll taxes? And that was for whole year, not for one week or one month.

The biggest tax change since 1960 is the growth in Social Security and Medicare taxes, also known as payroll taxes.

You may not think about them as you prepare your income tax returns, but for most taxpayers, payroll taxes are a bigger burden than income taxes. According a report issued last week by the congressional Joint Committee on Taxation, for more than four out of five tax filers, employment taxes are a bigger burden than income taxes.

Growing importance of payroll taxes

And payroll taxes have become a larger source of revenue for the federal government than they were in 1960. Back then, they accounted for 16 cents of every dollar of federal tax revenues. Last year they accounted for about 35 cents of every revenue dollar.

Why? The Social Security tax rate today is more than twice as high as it was in 1960 and the amount of income subject to the tax is far bigger.

In 1960, only the first $4,800 of income was taxed — and at a rate of just three percent. This year the Social Security tax rate is more than twice as high, 6.2 percent, and the first $106,800 of earned income is taxed. (The amount subject to taxation goes up every year, using a formula based on increases in average wages.)

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