Democrats Fiddling with FICA Tax Formula

[InTheLight]

In an effort to punish the rich the Democrats have fiddled with the FICA tax formula in the recent calculations for the two month payroll tax cut extension.

The Democrats plan calls for the reduced 4.2% FICA tax rate to be applied for two months and only on the first $18,350 of wages.

Here's why.

In 2012 FICA taxes apply on the first $110,000 of wages earned. After someone earns $110,000, no FICA is withheld from employees pay. An annual wage of $110,000 is $9,167 per month, or about $18,350 in two months.

Democrats want to make sure that if the payroll tax cut only lasts for two months the wealthy will not get "more than their fair share" of a tax cut.

If someone makes, say, $240,000 a year that is $20,000 a month. This person would reach their annual $110,000 taxation limit much faster than lower paid workers. In two months this worker would get FICA tax cuts on $40,000. Suppose the FICA tax cut only lasts for the proposed two months? Then this high earner would reach his $110,000 limit sometime in June AND would have received tax cuts on $40,000. Democrats can't have that, so they cap the amount of eligible wages for the tax cut at $18,350. Looks like class warfare to me.

Do they really want to stimulate the economy, or punish the wealthy?

 

[carpro]

It's a shell game.

Just another way to increase the federal deficit without seeming to do so.

 

[billwald]

The sin is putting the cap on the payroll tax in the first place.

 

[Salty]

The sin is putting the cap on the payroll tax in the first place.

I would assume there is also a cap on the amount of SS you would recieve?

 

[InTheLight]

Originally Posted by billwald
The sin is putting the cap on the payroll tax in the first place.

I would assume there is also a cap on the amount of SS you would recieve?

Not a cap per se, but there is a maximum amount you can receive based on how much you've earned over your lifetime. (IIRC)

The SS program is supposed to be like a minimalist government pension plan. It's not a wealth distribution scheme, although I suspect that Obama would love to raise the cap on taxable wages and give more to people that didn't pay in very much.

 

[InTheLight]

Let's not forget that any talk of a payroll tax cut extension is coupled to an extension in unemployment benefits.

Funny though, you never hear the legislation referred to as "The Unemployment Benefits Extension" bill. I wonder why that is??