The Good, Bad, And Ugly Of Payroll Taxes

Payroll Taxes

Clients of BenefitMall trust the Dallas-based payroll provider to handle their payroll tax reporting. Some set up special tax accounts from which payroll taxes are deducted; others pay their taxes out of their general accounts. Payroll is processed every week or two, tax deposits are made, and tax filings are sent to federal, state, and local taxing authorities.

If you are like most of us, you don’t think much about payroll taxes except to acknowledge that they come out of your paycheck. But how much do you really know about them? Do you know who assesses payroll taxes and what they are used for? Below are some of the good, bad, and ugly parts of paying payroll taxes.

The Good

A certain degree of taxation is necessary for a country to function. A country requires government to ensure safety, security, and order – at a bare minimum. But guess what? The government needs money to do what it does. That is the purpose of taxation.

Federal payroll taxes are good in the sense that they fund some very good programs. As explained by BenefitMall, FICA taxes fund Social Security and Medicare. Income taxes fund a plethora of government initiatives ranging from infrastructure to defence. At the state and local levels, income taxes pay for services like police and fire protection, garbage disposal, and so forth.

The Bad

Despite payroll taxes funding very good programs and services, not all is sunshine and roses. There is some bad here, too. For instance, taxing authorities rarely, if ever, agree to work with less. Where you and I may have to cut back when money gets tight, the government never seems to do so. They seem to be on a never-ending quest to collect and spend more.

Also in the bad category is the fact that governments spend tax revenues on things many of us do not think are appropriate. They also tend to spend more than the private sector on equal goods and services thanks to the way projects are doled out. We all know that government red tape is financially inefficient and leads to wasteful spending.

The Ugly

Unfortunately, there is definitely an ugly side to payroll taxes as well. Ugliness starts with the reality that payroll taxes never seem to solve the problems. Taxing authorities continue to take more from us without delivering any results. We could debate as to why that is, but that’s not the point. The point is that for all the taxation we are subject to, it would seem like we should get a better return on each dollar spent.

Another ugly aspect of payroll taxes is that they affect lower-income people disproportionately. Every time payroll taxes go up, people lose a certain amount of their disposable income. Such losses may not be a big deal for the upper-middle class and above, but they are big deal for lower-middle class and poor Americans.

The hardest hit are those workers who face payroll taxes at all three levels. They pay federal, state, and either city or county payroll taxes. Imagine what they must go through every January. A few dollars here and a few more there really add up after many years of working and paying payroll taxes to three different entities.

Payroll taxes are a part of life. There is no way to avoid them. They are good in the sense that they fund essential programs and services. They can be bad or downright ugly when government leaders misuse or abuse the funds the rest of us provide. It is what it is.