I’ve blogged before on President Obama’s plan to raise income taxes on Americans making more than $250,000 a year.
But something that has not been in the spotlight quite as much is Obama’s proposal to raise the cap on the Federal Insurance Contributions Act (FICA). FICA is a tax that funds Social Security and Medicare.
Brian Compton, my associate and the President of Tax Resolution Services, was recently interviewed by Craig Clough from San Deigo’s 10News on the future of FICA.
All taxpayers have FICA automatically deducted from their paychecks before they even receive them, so unlike federal income taxes, FICA deductions cannot be creatively lowered with the help of a great accountant.
“There’s no getting around (FICA). If you are self-employed, it’s based on the profit your company made as opposed to revenue,” Brian said.
FICA has been in effect since it was passed in 1935. While the percentage that Americans pay rarely changes, the cap on the amount that is taxable is a number that has rapidly grown this decade.
In 2000, the cap was $76,200, and it has increased each year since up to the current $102,000 for 2008.
Considering how little attention was paid to Obama’s proposal on raising the FICA cap by the media during the election, the law could be passed with little notice from the public.
“I don’t think there will be any push back on (the FICA cap), and it will go by relatively unnoticed … Joe the Plumber wasn’t talking about it,” Brian said. Under Obama’s plan, a FICA cap raise could have a huge impact on wealthy taxpayers’ pocketbooks.
The argument is that they’re rich so they can afford it. But the more conservative thought is that rich people own their own businesses and when they have less money to invest in their company, they must start cutting wages, benefits and jobs.
While a cap raise will help raise Social Security funds, it also helps deliver the broader economic message of Obama, which is his desire to “spread the wealth around,” as he told Joe the Plumber on the campaign trail.
“(A cap raise) won’t solve the problem percentage-wise,” Brian said. “There aren’t that many people in the country that make north of $250,000 a year. There’s a bunch of people that do, but the total percentage is not that high. It does help raise additional funds, but it also communicates to a broader cross section of taxpaying America, ‘Hey, we want things to be fairer for you.’ ”
Read the full article How Much Will Taxes Lower Your Paycheck? here.
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