FICA Regressive Taxes
A regressive tax is a tax in which the overall tax rate decreases as incomes rise. A regressive tax does not necessarily imply a decreasing marginal tax structure. More often than not, regressive taxes are classified as regressive as a result of a cap on the amount subject to the tax. The FICA tax is a good example of this kind of scenario.
How FICA taxes are regressive
There are two different types of FICA taxes – the Social Security tax and the Medicare tax.
The Social Security tax is a flat tax for all income under a certain amount ($106,800 in 2010).
Income (in dollars) |
Amount Taxed |
Tax Paid |
Tax Rate (percent) |
15,000 |
15,000 |
930 |
6.2 |
25,000 |
25,000 |
1550 |
6.2 |
50,000 |
50,000 |
3100 |
6.2 |
100,000 |
100,000 |
6200 |
6.2 |
150,000 |
106,800 |
6621.60 |
4.41 |
200,000 |
106,800 |
6621.60 |
3.31 |
500,000 |
106,800 |
6621.60 |
1.32 |
1,000,000 |
106,800 |
6621.60 |
. 66 |
5,000,000 |
106,800 |
6621.60 |
.13 |
10,000,000 |
106,800 |
6621.60 |
.066 |
From the chart above, we can see how the very rich pay a much lower percentage of their income in FICA taxes than do lower and middle class wage earners. The FICA tax meets the requirements of a regressive tax since the tax rate paid clearly decreases as incomes rise.
Additional Considerations
The FICA tax only applies to wages, not other sources of unearned revenue – such as interest or capital gains. Wealthy individuals tend to make larger and more frequent investments, while lower-income individuals cannot afford such opportunities. The income for most working Americans is almost strictly in the form of wages, which are subject to FICA taxes. In contrast, wealthy investors may make substantially more money from their investments, which are not subject to FICA taxes.
In this article, we have explored the FICA Regressive taxes.
