We've all heard about the tax reductions that keep coming our way from our friends in Washington, in the form of greater exemptions, higher standard deductions, credits for children, credits for sending children to school, credits for sending yourself to school, credits for having a job where you don't earn very much money, and so on'I just want to point out that, while one hand of the government seems to be reaching out to taxpayers, the other hand is quietly slipping in our back pockets and taking back what is so generously being handed out.
I know we're not supposed to talk about this, because, after all, we all know that our IRS is a kinder, gentler IRS, and not out to stick it to the taxpayers, but I did want to mention the fact that once again, the social security tax bite continues to rise.
This rise in social security tax doesn't affect all taxpayers, only those with income over $72,600'It may seem that we don't have to feel much sympathy for taxpayers with incomes in the over-$70,000 range, because we all know that anyone who makes that much money doesn't really need to have extra cash laying around and won't mind at all paying a little more in social security tax, especially since there's such a good chance that the social security system will be completely solvent and ready to take good care of today's workers when they retire.
But for those of you who are affected, or who care about someone who is affected by the change in the laws, here's a brief summary of what has happened to social security withholding.
For the year 2000, the maximum earnings subject to social security tax will rise from $72,600 to $76,200'This results in an additional tax of $223 on anyone with taxable income of $76,200 or more (the actual tax withheld on that extra $3,600 of income will be $275, with $52 representing the Medicare portion, but the Medicare portion does not represent an increase)'Self-employed individuals with income of $76,200 or more get to see a tax increase of $446, because we all know that those self-employed goof-offs deserve to pay twice the tax as people with real jobs.
When social security began, in 1937, a worker put aside 1% of his income, up to a maximum of $3,000 of income, or a maximum contribution of $30 per year toward this retirement program'Even though incomes in 1937 were lower than they are today, I don't think this was seen as a hardship.
Thirty years later, in 1967, workers were socking away 4.4% of income up to $6,600 for social security and Medicare, or $290 per year, for a whopping 966% increase'Even though this is a giant percentage increase, this doesn't sound like much of a hardship to me, but I was still a student in the 60s and don't really have a feel for how much $290 per year was in relation to other expenses.
Things really started to go nuts with social security in the late 70s and through the 80s, when the annual income subject to the tax increased at a rate of over $2,000 per year, and the tax rate kept increasing as well.
Fast forward to 1997, where workers found themselves generously contributing 7.65% of their income up to $65,400, or $5,003 per year, with no cap on the amount of income subject to the Medicare'This represents a 1,625% increase over 30 years 'actually even higher when you add in the Medicare which continues to be assessed on income over the social security threshold 'and a 16,577% increase over 60 years.
Now, for year 2000, we're at 7.65% of $76,200, or $5,829 for the annual contribution'This represents a 16.5% increase in just three years, and a mere 19,330% increase since inception.
Double these amounts for the self-employed individual, who now must pay $11,658 if he earns $76,200, before he even begins calculating income tax.
I know we've had some inflation in this country, but this increase seems a tad higher than the increase we've seen in the cost of a loaf of bread.
Anyway, I'm sure I'm just being cynical and this all makes sense to someone'Meanwhile we'll all just keep paying and paying, because in this land of the free, we have no choice in the matter.
copyright Â© 2000 Gail Perry - Fun with Taxes