The payroll tax is actually progressive too.

Those with higher working years earnings get a significantly less percentage of their contributions returned during their retirement years. If your total income is higher in your retirement (unearned income) you are subject to income taxes on your Social Security earnings(tax on a tax) and you pay a significant monthly medicare premium adjustment*.

*Income-related Adjustments: People with Medicare who report 2011 income above $85,000 a year ($170,000 filing jointly) are legally responsible to cover a larger portion of the cost of their coverage. These premium adjustments range from $42.00 to $230.80 a month for Medicare Part B.

@Jay That sounds good in theory -- "payroll tax is actually progressive too".

However in practice, as you know, the Payroll tax has been subsidizing the General Fund for decades --- if not ever since its inception.

Politicians like to talk about the "lock box" into which excess collections of social security, etc., are put into --- and the average person thinks that the money actually is put away somewhere until it is needed. NOT SO !!

The excess money is used along with the General Funds. When we talk about the National Debt --- yep, a lot of it is owned to ourselves!

If it were not for the politicians using the Payroll Taxes to subsidize the General Fund --- they would need to Raise a Lot of Taxes ---- and that would include on the Higher Earners also.

I know this can be argued back and forth "Tomaato or Tomato" --- but a case can be made that by using the Payroll Taxes to subsidize the General Fund, the Higher Earner are able to be taxed at a lower rate by being subsidized by that revenue.

I also do not buy into Social Security as being a "pay as you go" plan --- I know it was a wolf dressed up in sheep's clothing to get it through congress at the time -- but it really is a Safety Net Program and not a quid pro quo.

Unfortunately, with the demise of the corporate pension plans (defined benefit) it is now very necessary for those for whom it was never intended to be a cornerstone of their retirement.

@Steve So You're the ONE who Built the Tax Code ---- start running, the tar is being heated up and the chickens are being plucked now that we know who is responsible !!

No whining, pay your fair share its patriotic.

51% of Americans support this tax code by reelecting that socialist.

@ Brian Form 1120 as I understand it, simply establishes what the profit or loss is for the company. This profit or loss goes directly to the shareholders who then put it on their 1040. The S Corp does NOT pay a corporate tax on this profit or loss at the Federal level, or at the state level in Wisconsin.

It is an added advantage for the shareholders that they can transfer a loss to their 1040 ---a shareholder in a regular C Corp does not get this opportunity.

I do not follow your take on the sole proprietorship --- their profit or loss again,simply transfers to their 1040 -- but they do not have the protection of the corporate veil --- hence, their company can be attacked for any personal liability they have.

That is why so many small business owners who elect to incorporate to protect the company against their personal liabilities (and vice versa) take the Sub S election, so they pay the same taxes and NO corporate taxes.

An LLC is another way to achieve the same purposes, but LLC's are not universal and there a many more complications that have to be addressed, especially if they operate in multiple states.

In summation in Wisconsin --- a company can make 100's of millions in profits and pays NO Federal Corporate taxes on that profit, and NO state corporate income taxes on it either. It is only taxed once, as personal income on a 1040.

Perhaps Jay can clear up any mis-statements or mi-understandings here.

David- I own an S Corp and from most S Corp owners I know, which are many, I and we own 100% of our stock so the profit and losses pass though to the owner. We are not getting away with anything. We are paying our fair share. And yes, many think they are insulating themselves from personal liability, they really aren't. As a Corp, you have to have a board. If have a board, you have to have officers. Officers are liable for liabilities of the Corp.

@Brian I believe that under Wisconsin law, a corporation can have a board of one !!! In any case, even if every corporation had a board of a dozen, there are very specific instances in which board members could have a liability --- and larger corporations usually provide board members with liability insurance.

If not for the corporate veil --- why else would a small company incorporate ?

You beat me to the question -- is the 'revenue' of which David speaks gross or net? My understanding is that one only pays tax on the net.

I have to agree with your opinion about this blog. The author knows only enough to be dangerous by spreading misinformation. While I read this piece, I wondered if the author was complaining that sole proprietor business should pay taxes and then the pass through income should be taxed yet again?
Previous articles by this same author will shed some light on his agenda and twisted views on economics.

My understanding is that one only pays tax on the net.--probably the dumbest thing ever said on Patch. Randy1949 the drunken monkey needs to know that net means after taxes. Are we to believe that you think that taxes are paid on the net-net? maybe this is the next liberal wet dream.

Really, Bam-Bam? I thought net revenue meant the amount left after you have paid all your business expenses. 'Acme Widgets' has one billion dollars in sales per year, but it doesn't pay corporate taxes on the entire one billion. It pays corporate taxes on one billion minus the cost of making and selling the widgets, and that amount is considerably less.

It's the holidays. I'll give you a little gift by letting you ridicule me further.

@Mike Unfortunately I used the word revenue when I meant profits or earnings --- other than that, of course there is a huge difference --- in one case a "corporate " income tax is paid ---in the other No "Corporate" income taxes are paid --- I think this is very important, because we keep hearing how our corporate income taxes are the highest in the world -- and if many of the huge companies which the average person thinks of as a corporation that is paying corporate taxes, they should know that many avoid that if they qualify for a subchapter S

Bam Bam you are way out of line going after Randy1949.
I hope it was a case of mistaken identity.
My question is this: How is an S corp getting corporate tax breaks? If this is passed on to the owners as regular income and taxed as such, the tax rate is 35-39%.
According to the math I learned, this is at least more than regular corporate tax rates ANYWHERE on the planet!

I'm sick of all this BS nonsense that gets bandied about because a few corporations with extremely sophisticated, though legal, tax strategies, avoid paying higher tax rates. The fact of the matter is, the majority of corporations, large & small, pay their "fair share", but we only hear about the Googles and Facebooks of the World.

The taxation of S-corporations vary by state, some recognize the election and grant pass-through status so that the income is taxed at the shareholder level, and some states don't recognize it and force the entity to pay taxes as well. I'm not sure where you're getting the information that someone with income from a WI S-corp wouldn't have to pay income tax on their share of income from the S-corp (unless you're referring to the someone who lives in one of a few states with no personal income tax).

All the information passed around through major news outlets, those are generally exceptions to the rule. Most folks who are "rich" do in fact pay their fair share, which is generally, after deductions, etc, somewhere probably in the neighborhood of 25-30% to federal, and 5-8% to state, not to mention property taxes, sales taxes, etc.

Yes their are folks who use loopholes to their advantage to minimize or negate their tax bills, more power to them if they follow the letter of the law. But trying to frame your liberal "tax the rich more" point-of-view through the thin veil of demonizing pass-through entities is silly and pointless.

@Mike I have purposely not said what I thought anyone should be paying -- corporate or individual --- in income taxes. Your thought is "fair share" --- which is meaningless, as that means something different to everybody.

What would you define as "fair share" in STATE income tax for a company with 10's of millions in profits --- in Wisconsin (where we live) if it is an S Corp they pay NO Corporate taxes, plain and simple. And most folks do not know that !!

If any of the shareholders live outside Wisconsin, they pay NO Wisconsin income tax on that profit --- do you think most folks know that?

Again --- I have no problem with any entity or person using all the legal loopholes and deductions to lessen their tax burden. They would be foolish not to do so.

But in a system in which huge companies can avoid corporate taxes, and a system in which some huge companies can avoid all, most or some Wisconsin taxes of any sort on the earnings of that company --- it is the voters who are being fooled !

Isn't all the talk about how high our business tax rates are in this country compared to the rest of the world disingenuous and intentionally misleading to the voters ?

Tax rates and Actual Taxes are totally different --- let's make that clear and part of the discussion.

@David - "If any of the shareholders live outside Wisconsin, they pay NO Wisconsin income tax on that profit --- do you think most folks know that?" Actually, people wouldn't know that and they shouldn't because it's not true. If you are a shareholder of an S-corp per WI laws, then you must file a WI tax return and report your activity on that S-corp.

You keep harping on this point that S-corps don't pay on corporate tax in WI, what's your point? It's a tax law that allows certain corporations to be treated as a pass-through entity, ultimately that income is still being taxed at the individual level, so why are you whining so much about it? If a corporation pays tax, great, if an individual pays tax, great, what's the difference? It's all money to the gov't. Not all corporations pay dividends, so arguing that the gov't is somehow losing out on the double taxation is not a solid argument.

There's no secrecy about pass-through laws, if people are ignorant to them, your terribly written article isn't going to help the situation.

What loopholes? You mean not getting (income) taxed on the first $18K of my income (married, joint filers)? Some loophole! You get the same loophole, BTW. So does Mitt Romney.

As far as corporate taxes go, if a corporation is so small that it only generates enough revenue AFTER expenses to put it into the lower tax brackets, then they should pay at the same rate as an individual. But i don't see why anyone would incorporate if the business were that small.

Bear in mind, my experience goes only as far as running a little Mom & Pop business and filling out the Schedule C and SE. If we were lucky enough to make enough from the business to get us into the 35% bracket, I think I'd just count my blessings.

@Go Gait I guess you don't understand the difference between not reporting a tax liability and trying to get away from it, and actually reporting a liability, and paying it off over time, along with monstrous interest and penalty charges.

If someone is injured and has astronomical medical expenses and is unable to fully work -- but chooses not to go on the dole and to do what they can, and to report their tax liabilities and pay them off with huge added amounts -- you somehow think that is the wrong thing to do?

I guess a little information can be too much to assimilate by a little mind !!

Actually, here's your golden opportunity to explain how different corporations are structured and taxed. I know I'd be interested.

@Randy, perhaps I'll have to write my own blog about it, way too much to include in a comment field! And it would be way longer than the original article above, as to do it any justice you have to go into some level of detail. It's pointless to explain it using extremely basic examples, because those examples don't reflect how it works, ever.