What is the difference between payroll and income tax? Is payroll merely the weekly form of income tax or is it different since it raises money specifically for social security and medicare/medicaid.
Is the govt trying to screw over the poor by making us pay more in payroll taxes that are more regressive than income taxes?? I hate how they only have a sales tax for goods, which the poor (and everyone) need, and not for services, of which the rich buy a larger share proportionally.
Thanks!
ANSWER PERSON RESPONDS: Technically, a payroll tax is a tax paid by the employer based on its payroll. An example would be the employer portion of U.S. Social Security (Old Age and Survivor’s Insurance or OASI) or unemployment insurance (FUTA, for Federal Unemployment Tax Act). There may be all sorts of variations, such as limits on the level of wages on which the Social Security tax is applied. Colloquially, I’ve heard the term used for the entire Social Security program, including the employee portion, as you suggest. The income tax comes from the employee based on their income and, from a theoretical or policy (but perhaps not from a psychological) standpoint, is considered distinct. The money isn’t earmarked the same way as OASI or FUTA money. You can read about these topics in standard textbooks or dictionaries of economic or public policy terminology.
The topics of tax policy and tax incidence (e.g., who ultimately pays for the employer portion of OASI, or corporate income taxes, or property taxes — is it “passed on”?) has been studied extensively in academic literature (but probably not so much by politicians!). You’re correct that Social Security and sales taxes are generally considered more regressive than some other taxes, although ultimate incidence can be debated and you also have to consider the recipients of expenditures funded by a tax (which might make it less or even more regressive). I invite you to search our library’s catalog or databases that index articles or ask at our Reference Dept.