The Benefits to Taxpayers from Increases in Students - RAND ...

Payments for Taxes and Social Programs 33
Table 3.2
Average Federal Income Tax Rates and Related Data, by Income
Adjusted Gross
Income ($)
Average Tax
Rate (%)
Adjusted Gross
Income
($, millions)
Amount of
Benefits
($, thousands)
Average
Adjusted Gross
Income ($)
All 14.1 5,641,128 90,964 62,015
Under $10,000 2.5 36,492 5,316 6,865
$10,000–$20,000 4.6 198,171 13,089 15,140
$20,000–$30,000 6.7 321,667 12,877 24,980
$30,000–$50,000 8.0 883,965 22,482 39,319
$50,000–$100,000 10.6 1,844,319 26,377 69,921
$100,000–$200,000 15.8 1,107,803 8,408 131,756
$200,000–$500,000 22.8 548,162 1,906 287,598
$500,000–$1,000,000 27.9 226,745 336 674,836
Over $1,000,000 28.6 474,933 169 2,810,254
SOURCE: Parisi (2004–2005, Figure B).
Payroll Tax Rates
Individuals pay Social Security and Medicare taxes out of personal income based on
legally imposed payroll tax rates (Table 3.3). Social Security taxes finance the Old-
Age and Survivors Insurance and the Disability Insurance programs. Medicare taxes
finance the Hospital Insurance part of Medicare. The employer and employee each pay
a tax equal to 5.3 percent of the employee’s income for Old-Age and Survivors Insurance,
0.9 percent for Disability Insurance, and 1.45 percent for Hospital Insurance, for
a total of 15.3 percent (Social Security Administration, 2005). For Social Security contributions,
taxable earnings are capped at a level that is adjusted each year according
to national average wage. That ceiling was $84,900 in 2002 (Social Security Administration,
2002). Since 1993, a total Medicare tax of 2.9 percent has been applied to all
earnings.
Table 3.3
Statutory 2002 Payroll Tax Rates and Medicare Tax Cap
Rate
(%)
Ceiling
($)
Maximum Tax
($)
Old-Age and Survivors Insurance 10.6 84,900 8,999
Disability Insurance 1.8 84,900 1,528
Subtotal, Social Security 12.4 84,900 10,528
Medicare (Hospital Insurance) 2.9 – –
Total 15.3 – –
SOURCES: Social Security Administration (2002, 2005).