Sensible Tax Reform--Simple, Just and Effective



Social Security and Medicare Taxes

(1) Sensible Tax Reform
(2) The Impact of Sensible Tax Reform upon American Families
(3) The Impact of Sensible Tax Reform upon American Businesses
(4) The Impact of Sensible Tax Reform upon Social Security and Medicare
(5) The Impact of Sensible Tax Reform upon Very High Incomes
(6) The Impact of Sensible Tax Reform upon Estate Taxes
(7) A Federal Consumption Tax
(8) Table of Contents


(4) The Impact of Sensible Tax Reform upon Social Security and Medicare Taxes

Our Social Security and Medicare taxes are the most regressive of all federal taxes (that is, they fall much more heavily upon the poor and other lower-income classes than upon high-income groups). Even a high-school kid working at a fast-food restaurant is charged 7.65% in Social Security and Medicare taxes on everything that he earns. And those taxes can neither be rebated nor even deducted from income taxes. In addition, employers must also pay 7.65%. While those costs are tax-deductible for businesses, they still add more than $500 billion to their costs every year.
No person or business will pay those taxes under Sensible Tax Reform. The current method of collecting Social Security and medicare taxes directly from employees and their employers will thus cease. However the Social Security and Medicare benefits will remain the same. The system will be funded from the general federal budget.

The benefits of Sensible Tax Reform for the poor and other lower-income groups will be dramatic. For a poverty-level family with $20,000 of income, their Security and Medicare taxes will be eliminated (and therefore their take-home pay will rise) by $1530 (7.65% of $20,000). For someone with an income of $100,000, their increase in take-home pay will be $7650 (7.65%). Those with higher incomes will save more in dollar terms than the poorer groups, but the savings will be relatively less important to them as a share of their total income.

The self employed generally pay twice as much as do employees. Thus, they will save twice as much. STR will provide a very strong stimulus to the self employed.