The Medicare federal payroll tax for 2012 for both the employee and the employer is 1.45% of the employees wages. In other words, there is No Wage Cap for Medicare taxes.
Ignoring the one-time, one-year 2.0% payroll tax holiday for the employee portion for 2012, the Old-age, Survivors and Disability Insurance (OASI) federal payroll tax for both the employee and the employer is 6.2% of the employees wages, but only up to a maximum Wage Cap of the first $110,100 of the employees wages.
The one-time, one-year payroll tax holiday is clearly a substantial tax loophole for all working employees. But the tax benefit received here by the upper middle class and above, or those making say $100,000 or more, was substantially better than it was for those making much less, or in other words, especially better than it was for the clearly neglected "Underemployed".
And those unemployed for all of 2012 get no payroll tax holiday, since they received no wages.
Thus, clearly the one time, one-year payroll tax holiday further widened the economic gap between the very and the somewhat wealthy, and everyone else.
The Medicare tax is the fair one, since there is No Wage Cap on it.
On the other hand, the OASI payroll tax is the one with a clear tax loophole for the wealthy, since it is only assessed on the first $110,100 of employee wages in 2012.
Thus, it only makes sense from a fairness standpoint to remove this Wage Cap for OASI payroll tax purposes, for both the employer and the employee.
But the real problem is the huge gap between the very wealthy and everyone else. Someone making $100,000 a year is not wealthy, especially if they live in a high-cost area, or have to pay for college tuition, or have to pay very high interest on homes that are underwater.
Thus, that is why it is fair for the country to focus on increasing the taxes paid by those making $250,000 or more, and to use the funds to reduce the US Debt.
Thus, to be fair, for OASI payroll tax purposes, starting in 2013, I would keep the Wage Cap like it is presently constituted, but then remove it for all of those making $1 mil or more. And then I would fairly scale up the removal of the Wage Cap for those making $250,000 or more. For example, the additional OASI federal payroll tax could be designed something like this:
For W-2 Wages of $250,000 to $400,000.....1.0%
For W-2 Wages of $400,000 to $550,000.....2.0%
For W-2 Wages of $550,000 to $700,000.....3.0%
For W-2 Wages of $700,000 to $850,000.....4.0%
For W-2 Wages of $850,000 to $1,000,000..5.0%
For W-2 Wages above $1,000,000.................6.2%
And then the company would have to match this increased OASI federal payroll tax paid by the employee.
OK, that raises a lot of money for the US Government, but how best to use it?
Well, clearly the employed people who are neglected are the "Underemployed", with many of them, especially those employed in retail, being paid at or near the minimum wage, and working several part-time jobs. And individuals working in smaller, and in rural areas, are much more likely to be "Underemployed".
And you know who else are much more likely to be "Underemployed"?
It's the lowly-paid "Independent Contractor", who gets the additional
"privilege" of paying payroll taxes twice, since clever-by-half, greedy corporation after greedy corporation do everything in their power to classify someone working on their behalf as "Independent Contractors", rather than as either part-time or full-time employees.
Thus, I would give a permanent complete payroll tax holiday for the first $20,000 of wages for each employee for every year, with this amount stepped up for inflation each year. Effectively, this works like a back door increase in the minimum wage, since if the Underemployed are paid a total of $20,000 or more in 2013, they would be receiving a reduction in the federal payroll taxes they would otherwise pay of 7.65% X $20,000, or of $1,530, which could really come in handy for these Underemployed.
And these financially-strapped Underemployed would, in all likelihood, spend this $1,530 right away, which stimulates the US economy.
And not just the Underemployed, but all employees would be receiving a complete payroll tax holiday on their first $20,000 of wages in 2013.
And companies would get a like matching permanent payroll tax holiday for the first $20,000 of wages for every employee for every year. This gives them a nice incentive to hire, because every new, non-very highly paid employee is going to cost them much less in total employee benefit costs.
And what this permanent payroll tax holiday for the first $20,000 of wages does is just the opposite of what has been happening in the past two decades or so. Instead of unfairly expanding the wealth gap between the wealthy and everyone else, it fairly reduces the wealth gap between the wealthy and everyone else.
And with the additional US Government Payroll Tax Revenues received here, I would use it to reduce the Total US Debt, by strengthening the Total Social Security Fund Bank.
And if the CBO scoring comes out such that the projected increase in the Total Social Security Fund Bank is of insufficient size, then you could reduce the permanent payroll tax holiday 7.65% percentage for the first $20,000 of wages. Or alternatively, you could change this payroll tax holiday from a permanent one to one lasting for just a number of years.
If you want to build the US middle class out, the above recommendations are steps that get you there.
