I find it astounding that in 2009, the total revenue from the income tax, at 6.4 per cent of GDP was almost identical to the revenue from social security receipts, at 6.3 per cent. If this were my country, I would find that scandalous, given the latter are so much more regressive (and job destroying) than the former. But it is not. I merely point it out.
Martin Wolf, responding to comments at Martin Wolf’s Exchange, 27 July 2010.
Andrew Biggs writes:
Martin Wolf argues that payroll taxes are both regressive and job destroying. But this is true only to the degree that the tax exceeds the benefit that the tax generates. In the U.S. there’s a fairly direct link between Social Security taxes paid and benefits received, at least for the primary earner in a household. And given the general progressivity of the benefit structure, the net tax rate – that is, taxes net of benefits, relative to earnings – is well below the statutory rate and fairly progressive. For low earners the net tax rate is almost always negative, meaning that they get a significant subsidy from the program and therefore should see the combined tax/benefit structure as an incentive to work, not a destroyer of jobs. In other countries the tax/benefit link may be weaker, but in the U.S. it’s strong enough that I think the two need to be considered jointly.
Andrew G. Biggs
Resident Scholar
The American Enterprise Institute