Mike Schwartz
					7629 W Kristal Way
					Glendale  AZ 85308

					schwartz@acm.org

					Jan. 01, 2003

Dear Mr. Buckley,
     Just a picayune nit-pick about a side comment in 
"The Week" section of the NR/Dec 31, 2002 issue.  It arrived 
the same day as my Federal and state Income Tax forms, to
be filled out by April 15, 2003.
     The segment starting "Bush should start with [...] 
the payroll tax" caught my eye -- especially the aside that 
"exempting a portion of earnings introduces a progressive 
element to a rate that's been fixed [...]".  
There is some room for interpretation as to what should be 
called a "fixed" rate when talking about a tax like this.  
At least with regard to the employee-paid part of the 
"payroll tax", the money withheld, (and, in the minds of
some taxpayers, deposited safely in some mythical lock box),
has already been subjected to income tax. 
(Federal and -- in some cases -- state, and even local).
     Since the federal income tax, at least, has various 
brackets, it is fairly well settled, that it is considered
"progressive".  See Anecdote A. 
about how this makes the payroll tax [already] "progressive".  

Anecdote A.
-----------
  The late Ken Angeloff, (my first boss at the co. where 
I work) used to joke that, he would gladly relinquish all 
rights to [ever] collect any money from Social Security, 
after normal (or early, or any other) retirement age, 
if the IRS (well, Congress) would just allow him to
"deduct", on Schedule A of his Form 1040, the money he
was contributing to Social Security, as a donation to a 
non-profit organization.
He had no "crystal ball" way of knowing that 
he would die before age 65, or even 62.  He simply meant
that, beyond resenting the money that the government was
taking away from him in the form of payroll taxes, he 
also felt that it was outrageous that he was first being 
forced to pay
income tax on that money -- even though those funds didn't
seem much like "income" -- since they did not show up, 
as part of his "bottom line" paycheck amount.

That is what Ken Angeloff used to say, only half in jest.
The memory of that,
(along with digesting some mathematical analysis by 
 an economist, that I think I read -- probably in a 
 magazine) 
got me thinking in terms of the relationship between 
the "top line" [gross salary] on a paycheck,
and the "bottom line" [net pay, after taxes], 
-- as a function of the tax rates.

In the case of payroll taxes,
(let's just focus on the so-called 
 "employee-paid" part, for now), I think the nominal rate 
is 7.65% (including Social Security and Medicare).
But since those funds are subjected to Income Tax first
(worrying just about Federal, for now) --
in some cases that nominal 7.65 cents, is being subtracted
from a dollar that is already down to 0.85 or 0.72
due to Federal Income Tax.  
So it doesn't seem so "fixed rate", any more.
What "they" may think of
as 7.65 cents being taken out of a pretax dollar,
(ignoring, for now, inflation, sales tax, and so on),
is really more like 
7.65 cents, being removed from an "after-tax" 
0.85 or 0.72, (for example);  so, to compute 
what I guess Ken Angeloff would have called
the real "rate" of lockbox taxation,
for purposes of this discussion, 
we have to express the 7.65 cents as a fraction of that
"after [income] tax" amount.  A trusty calculator
(or, slide rule), indicates that this 
is more like 9% or 10.625% -- just for those two "example"
tax brackets.  Again, this is ignoring
state and local income taxes, so your mileage may vary.
But the point is, it's already not very flat, or
even linear or affine.  Ken Angeloff probably would
have called it warped. 
     Sorry this was so long.  (it may be too long to
print;  maybe I will stick it on the WWW).  I really 
enjoy your magazine -- including the good-natured
quibbling under "Notes & Asides".
     With best wishes for a Happy New Year,
                 Sincerely yours,


                 Michael L. [Mike] Schwartz