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Accession Number PB2013-100240
Title Taxation of Capital and Labor Through the Self-Employment Tax.
Publication Date Sep 2012
Media Count 42p
Personal Author N/A
Abstract Since 1950, self-employed individuals have been covered by the Social Security system. In many regards, their obligation to pay Self-Employment Contributions Act (SECA) taxes into the Old-Age, Survivors, and Disability Insurance (OASDI) and Hospital Insurance (HI) trust funds and their entitlement to Social Security and Medicare benefits parallel those of workers who are not self-employed and who thus are covered under the Federal Insurance Contributions Act (FICA). In both cases, the OASDI tax base is limited to income below a certain threshold, and the HI tax base is not constrained by any income ceiling. The two systems, however, diverge in an important way: The FICA tax is based solely on income from labor, but the SECA tax is based on net business income, which can also include income from capital. Such a difference in the tax code (say, among businesses providing the same goods and services) can prompt people to make choices that they would not otherwise make about self-employment or the organizational form of a business, thereby reducing the efficient allocation of resources. For this analysis, the Congressional Budget Office (CBO) decomposed the SECA tax bases for HI and OASDI into their labor and capital components, but the discussion focuses on the HI tax base because it is unconstrained by the income ceiling of the OASDI tax.
Keywords Businesses
Capital income
Labor income
Self employment
Social security

Source Agency Congressional Budget Office
NTIS Subject Category 96A - Domestic Commerce, Marketing, & Economics
70D - Personnel Management, Labor Relations & Manpower Studies
70F - Public Administration & Government
92C - Social Concerns
Corporate Author Congressional Budget Office, Washington, DC.
Document Type Technical report
Title Note N/A
NTIS Issue Number 1302
Contract Number N/A

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