One jarring chart shows how taxes on workers have essentially replaced those on corporations

Restaurant workers

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Employees work behind the counter at a Mexican restaurant, June 2, 2017 in the Brooklyn borough of New York City.

  • Workers are a key pillar of the US economy. The payroll taxes that the government collects from their wages sustains two critical programs that benefit millions of Americans: Social Security and Medicare.
  • However, they're now shouldering more of the tax burden compared to corporations.
  • Recent research from Emmanuel Saez and Gabriel Zucman - two progressive economists at the University of California, Berkeley - shows that payroll taxes on workers now makes up a significantly larger portion of national income compared to corporate taxes, which have steadily been on the decline for decades.
  • Payroll taxes made up 7.8% of national income in 2018, compared to 0.9% for corporate ones - the widest gulf in almost two decades.
  • Visit Business Insider's homepage for more stories.

Workers are a key pillar of the US economy. The payroll taxes that the government collects from their wages sustains two critical programs that benefit tens of millions of Americans: Social Security and Medicare.

However, they're now shouldering more of the tax burden compared to corporations.

Recent research from Emmanuel Saez and Gabriel Zucman - two progressive economists at the University of California, Berkeley - shows that payroll taxes on workers now makes up a significantly larger portion of national income compared to corporate taxes, which has steadily been on the decline for decades.

Payroll taxes made up 7.8% of national income in 2018, compared to 0.9% for corporate ones - the widest gulf in almost two decades. This is shown in the chart below.

payroll vs corporate taxes

Andy Kiersz/Business Insider

Taxes on workers generated 35% of federal tax revenue in 2018, significantly higher than the 9% drawn from corporations, according to the Center on Budget and Policy Priorities.

Zucman told Business Insider that the trend, combined with wages that haven't budged much upward, has contributed to the high level of wealth inequality in the United States.

"Workers - who have seen their wages stagnate over the last decades - have seen their tax rates increase, while the wealthiest Americans have seen theirs fall," Zucman said. "This tax injustice is a powerful engine of inequality."

Tens of millions of American workers pay the 6.2% tax, which the federal government levies on wages to fund social insurance programs and employment benefits as well. It shrinks workers' paychecks as a result. Employers also carry the burden as they pay a 6.2% tax rate as well.

Seventy-seven percent of tax filers in the US were projected to pay some amount of payroll tax in 2019, data from the Tax Policy Center shows.

A history of tax cuts for high earners

Taxes on the highest earners have been repeatedly cut by lawmakers over the last three decades: Twice under President Reagan, twice under President George Bush and also President George W. Bush, his son, according to the Washington Post. President Obama also temporarily extended the Bush tax cuts in the midst of the Great Recession.

President Trump overhauled the US tax code in 2017, drastically slashing the corporate tax rate which led to a drop in federal tax dollars collected.

That's in stark contrast to payroll taxes, however, as they have steadily risen, helping to support a booming retirement population of Americans. They were temporarily cut in 2010 to help boost a sluggish economy but restored three years later.

"You've got more people in the system and getting more benefits, so the taxes rose to meet that," said William Gale, co-director of the Urban-Brookings Tax Policy Center.

Gale noted that "virtually everyone" pays the tax but the way its structured hits more lower-income workers, who mostly rely on wages for their income.

"The problem is that its paid on the first dollar of earnings and its capped, so its a regressive tax," referring to the $128,400 cap on taxable wages. After passing that threshold, its payroll tax-free.

Gale added: "Corporate taxes have come down even though corporate profits as a share of GDP have not come down."

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