The current 2.9 percent Medicare payroll tax split equally between employer and employee is extracted from all wages.
The Medicare payroll tax would rocket up by 62% for these disfavored taxpayers.
That is because all of the taxes and spending generated by the Medicare payroll tax is shifted to the private sector.
The Medicare payroll tax would also increase by 62% for these taxpayers.
This means the current 2.9% Medicare payroll tax will be increased to a total of 3.8% a big hit especially for the self-employed.
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He also used this device to reduce his Medicare payroll tax.
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Under the 2010 health law, high-income households will pay an additional 0.9 percent Medicare payroll tax and a new 3.8 percent levy on investment income such as capital gains and dividends.
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Similarly, the tax rate on dividends would nearly triple in 2013, due again to the expiration of the Bush tax cuts and the application of the Medicare payroll tax to dividends as well.
That, Sullivan observes in a blog post here, is a lot lower tax rate than the Helmsley building janitors likely paid, when Social Security and Medicare payroll tax rates are figured in.
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Every worker below a certain age should be free to choose to save and invest the employer and employee share of the Medicare payroll tax in a personal account operating under the same framework as has been proposed for Social Security reform.
They would see their income tax rates jump by nearly 20%, the capital gains tax rate increase by nearly 60%, the total tax rate on corporate dividends increase by nearly three times, their Medicare payroll tax rate increase by 62%, and the death tax rise from the grave with a 55% rate.
Because the long term returns from real savings and investment are so much higher, saving and investing over a lifetime the 2.9% Medicare payroll tax in the personal accounts would produce an income stream in retirement roughly three times as large as the uninvested, tax and spend, purely redistributive, pay-as-you-go Medicare payroll tax today.
As a result, the top two income tax rates will jump nearly 20%, the capital gains tax rate will soar by nearly 60%, the tax on dividends will nearly triple, the Medicare payroll tax rate will skyrocket by 62% for these disfavored taxpayers, and the death tax will rise from the grave with a 57% rate increase.
As a result, if the Bush tax cuts simply expire for these higher income earners, the top 2 income tax rates will go up by nearly 20%, the capital gains tax rate will soar by nearly 60%, the tax on dividends will nearly triple, the death tax rate will rise by nearly a third, and the Medicare payroll tax will explode by 62% for these targeted taxpayers.
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The 0.9 percent additional payroll tax for Medicare and unprecedented new 3.8 percent Medicare tax on investment income will have disproportionately large effects on the very entrepreneurs whose talents we should be rewarding rather than punishing.
If the nation is going to have a serious discussion about how to reform Medicare and its financing, the payroll tax increase needs to be on the table.
His proposal scraps the entire existing code, including capital gains, interest and dividend income, the estate tax, and the payroll tax that funds Social Security and Medicare.
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After that, paying all promised Social Security and Medicare benefits will require eventually almost doubling the current total payroll tax of 15.3% to nearly 30%.
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And if we set aside the pay-as-you-go nature of Medicare and pretend it really is an insurance program, your payroll tax contributions will end up covering only about one third of your personal tax-financed spending over your lifetime.
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The accompanying chart summarizes the net amount of Medicare benefits received by average earning seniors above and beyond their lifetime payroll tax contributions.
It's this budget loophole, unique to Medicare, that gives the health law's spending constraints and payroll tax hikes the appearance of reducing federal deficits.
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In fact, few Americans realize that we spend more out of general tax revenues to bankroll Medicare than we do out of payroll taxes.
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Those include beginning and expanding an option for personal savings, investment and insurance accounts for Social Security and Medicare, eventually expanded to finance all the benefits financed by the payroll tax today.
There are some big arguments about whether or not to give tax credits to low-wage workers who pay payroll taxes on Social Security and Medicare.
Let me count the ways: income taxes, Social Security taxes, Medicare taxes, property taxes, capital gains taxes, dividend taxes, sales tax, gas taxes, payroll taxes, business taxes, inheritance taxes, gift taxes, tariffs, tolls, and excise taxes.
Owners of S corporations can reduce their overall tax bill by paying themselves a salary, subject to payroll taxes (Social Security and Medicare taxes), and then taking a dividend, which is distributed free of employment taxes (and, again, isn't subject to the corporate tax rate).
The current Social Security payroll tax is 12.4% (there is an additional 2.9% for Medicare).
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