According to a recent Forbes article, the wealthiest 400 Americans pay of average of 18% of their income in Federal taxes. http://blogs.forbes.com/robertlenzner/2011/07/25/the-400-richest-americans-pay-an-18-tax-rate/
Now what do you think a minimum wage earner pays? Well they pay 15.3% of their income in Social Security taxes, half of this is hidden from them, but they pay 15.3%.
For a middle class person, making around $100,000 per year, they are paying approximately 21% average income tax, and 15.3% Social Security tax, or about 36%. Double what the wealthiest Americans pay.
Most interesting, we always are told by the wealthy how much they pay, and how little everyone else pays. This is a lie. Warren Buffett, the third wealthiest person in the world, points out his marginal tax rate is lower than his secretaries. Social Security taxes account for 40% of federal revenue, and income tax provides 41%. http://www.factcheck.org/2011/07/fiscal-factcheck/
So we have an extremely regressive tax system. The poorest pay the same percentage of income as the wealthiest, and the middle classes pay far more.
Of course the wealthy want to cut Social Security payments rather than remove the salary cap on taxation. If we remove the Social Security cap on salary income, we might go ahead and tax the “unearned” income of wealthy at the same time. If we apply the 15.3% Social Security tax to the wealthy, they then would be paying 18% + 15.3% =33%. Now the wealthy would have to pay about the same tax rate as a middle class individual.
In my next blog post, I discuss the impact of not raising the Social Security tax rate, but applying it to all income. This not only makes the tax system less regressive, but allows for doubling Social Security payments. This would help our economy immensely.