Question

The social security tax is an example of a(n) (1) tax structure because as the tax base increases, the taxes paid increase, but the marginal tax rate decreases. What type of tax structure is the social security tax?

1) Progressive
2) Regressive
3) Proportional
4) None of the above

Answer 1

The Social Security tax is a regressive tax because high-income earners pay a smaller percentage of their income than lower-income earners; earnings above $113,000 are not taxed at all. The correct option is 2) Regressive

Step-by-step explanation:

The Social Security tax is an example of a regressive tax structure because as the tax base increases, the taxes paid also increase, yet the marginal tax rate decreases for those above a certain income threshold. Specifically, the Social Security tax becomes regressive because income above $113,000 is not taxed at all, which means that, as a percent of total income, the Social Security tax impacts lower-income earners more heavily than wealthier individuals.

This is distinct from a progressive tax, like the federal income tax, where higher earners pay a higher share of taxes relative to their income. The Medicare payroll tax, on the other hand, is a proportional tax, with everyone paying the same rate regardless of income. The correct option is 2) Regressive