Cheers!

You are 100% correct. The payroll taxes were part of the rationalization for the Earned Income Tax Credit. Effectively, Social Security and Medicare are our most regressive taxes, because they are not only flat taxes, but they also cut off at a certain income level, so the effective Social Security tax on a $200K earner is lower than the effective tax rate on a $100K earner.

Of course, this limit is import to maintain the illusion that Social Security isn’t welfare – that it’s some form of social insurance and/or retirement plan. Obama will remove the cap, making social security more obviously a welfare plan for disability and the elderly. Of course, this will likely lead to its demise in the long term.

The point of my article (and thought) was that there is no limit to this logic. I’ll add an update above as an example, but with this definition, what’s to stop the government from having a 100% income tax, and then providing tax credits of 80% of the money. Voila, 20% of GDP is technically the government share, but in actually, we’ve completely socialized the economy. The 100% is the true take of the government, not the 20%.

Adam

It’s kind of a side issue to your point, and kind of not, but 40% of Americans don’t pay *Federal Income taxes*. Most do pay taxes of some kind or other — federal payroll taxes, state and local taxes of various kinds.