We were discussing whether Payroll Taxes (FICA, etc) are really a regressive tax or actually a mandatory retirement, disability insurance, elder health insurance, unemployment insurance all rolled into one. I am in the minority since I do not see it as a regressive tax.
The reason being because the person paying the bill is expecting a direct financial benefit in return for their expenditure. I can think of no other tax where this is the case. We may expect services in return, but certainly not a check that varies by the amount you contribute.
I support its continuing forever because it seems to be the only way to get many people to save for their later years. And Lord knows we won't let them pay the harsh consequences of their lack of self control. (ie extreme poverty and all that comes with it) Therefore long live Social Security, the mandatory savings plan.
43 comments:
What people expect something to be doesn't really have a lot to do with what it is. Especially when it comes to something that has been so extensively misunderstood and has been the target longstanding disinformation campaigns such as has been the case with Social Security.
--Hiram
The reason being because the person paying the bill is expecting a direct financial benefit in return for their expenditure.
So is someone who makes and sells a tank to the government.
--Hiram
I am pretty much thinking people are expecting to get what the Gov't tells them everytime they receive their estimate of benefits statement. Statement link That's not to confusing.
No, they are hoping to get the contract via a competitive bidding process. Just like the other tank manufacturers who are paying their taxes.
And you have to look at this link. Wiki SS According to this the tax is incredibly progressive.
"However, the impact is much greater for the future retiree (in 2045) than for the current retiree (2005). The male earning $95,000 per year and retiring in 2045 is estimated to lose over $200,000 by participating in the Social Security system."
Darn I am generous and no wonder the Conservative want to privatize it. Yet the Liberals have nerve to call it a regressive tax. Do they want me to cut another vein...
I think people can and do expect the government to keep it's promises in such matters. But as J. Ewing points out, that unlike with insurance contracts, people have no right for the government to keep it's promises. Unlike with any insurance contract, they are not enforceable in a court of law.
--Hiram
As a liberal I call FICA a regressive tax because that is what it is (although it is close to flat for most of us who make <$100,00). The large surplus from this tax over the last 20 years has been in the general fund paying for defense and everything else.
According to WIKI the benefits are progressive in that lower income people receive a higher % return on the money they have paid in. I suspect most of us will receive less than paid in due to higher retirement age and $ paid out to disability beneficiaries and nonworking spouses.
I think the story goes that the extra funds were invested in the "USA" (ie general fund), to be paid back when they are required. Just like my life insurance puts its funds in conservative investments. What can be more conservative than the USA.
As for taking the benefit away, I am pretty sure that is not going to happen. I could actually envision whole scale revolt if that actually occured. (ie no courts required)
As the trust fund surplus has been spent they are going to need to come up with more $ from somewhere. I think the most likely place is from raising the cap on wages on which the FICA tax is paid. I don't know but I think they need a lot more $ to pay out future benefits and perhaps need to eliminate the cap altogether.
As the trust fund surplus has been spent they are going to need to come up with more $ from somewhere.
There was never a trust fund to spend from. SS revenues always have gone into the general government fund, and that's always where social security payments have come from. We will come up with the money in the same way we come up with money to pay any other general government expense.
==HIram
The social security administration uses the term "trust fund" repeatedly on their website, which indicates its existence to me, even if it is partly in the form of IOU's.
This page on the financial status of the program is interesting, even if it is unclear to me as to how much taxes will need to be increased to meet the rising payouts
And to make things worse, they reduced the savings/tax rate rather than increasing it. IRS Extension Which of course will only deplete the fund faster.
The financial status link was interesting. It does appear their is a trust fund and that they were making payments off the interest until recently. (a good thing) However they are now tapping the principal. (a bad thing) It is like damaging the goose that is laying the golden eggs.
FYI, per the graphs in my first wiki link it looks like the break point for those that make money via FICA and those that lose is ~$55,000/yr. So ~1/2 of the households will make out better than worse. G2A Incomes Seems to make sense given it is a wealth transfer and mandatory savings device.
So no I do not feel bad for the lower income folks that are forced to pay/save. We would not need this if they would do it for themselves. It is kind of like Obamacare for retirement and disability.
The social security administration uses the term "trust fund" repeatedly on their website, which indicates its existence to me, even if it is partly in the form of IOU's.
Not very precise of them. Excess payments are used to buy government bonds, what people seeking to dishonor them refer to as IOU's.
--Hiram
It is a bit confusing, yet it makes sense. I assume Social Security's trustees have to invest the trust somewhere safe and secure. What can be more secure than the USA itself?
Most trusts would not be allowed to invest in their own company due to the lack of diversity, conflict of interest, high risk, etc.
However, since the wealth of the USA is the sum of our individual wealth. And the Gov't/Society is the entity that grants us our individual property rights. (ie wealth) It will probably work out just fine. It is about the most diversified holding one could have within the USA boundaries.
Last summer there was a move to dishonor America's debt, something I quite honestly never thought would happen. That Americans as a nation will one day refuse to pay their debt is now something that's possible. There was an article the other day in the Journal talking about character as an issue. To my mind, the folks who argue for the dishonoring our debt exemplify the decline in our political morality at least. This saddens me.
--Hiram
Every penny of Social Security surpluses (which ended last year, BTW) are BY LAW invested in "special" US Treasury bonds carrying a "special" SS interest rate. The money from the "sale" of those bonds to the trust funds goes into the US general fund and is spent on the same long menu of wastes and excesses that every other tax dollar goes to. Now every penny of the FICA tax immediately goes to pay CURRENT SS recipients.
As the amount the FICA tax brings in becomes lower than the amount paid out, which started last year, some number of those bonds must be "cashed in" to pay current benefits, which means Congress has to raid the general fund-- OTHER taxes or spending-- to find the cash. Their other choices would be to raise FICA taxes or to cut benefits (say by raising the retirement age), but neither of those things address the fundamental flaw in the Ponzi scheme that makes it unsustainable. It is a lousy investment for almost everybody that joins after the first few folks (all dead now) have made the big profits. Again, it is not an insurance policy, retirement plan nor investment in any rational personal financial plan.
It is a fair argument that many people might choose to spend now rather than save for their own retirement, if SS were eliminated. That, and the desire to get the old folks off of the job market so the young ones could find work, were the two big reasons for it in the beginning. But it never made sense to make it universal for those reasons. Even now, all we would need to do is REQUIRE that people put the equivalent of their SS taxes into a private account (perhaps from a list of "approved" private plans), starting today, and the whole system would phase itself out smoothly over the next 40 years. Everybody would get what they have been "promised" up until today, and their private accounts would provide the insurance, retirement plan and investment functions that SS lacks. Everybody wins and the only losers are the politicians unable to threaten senior citizens with the end of what has long been the fiction that SS is anything except a tax funding an entitlement.
J. Ewing
By the way, if you still think there is a legitimate "investment" represented by the SS trust fund, ask yourself this: Why not simply raise the interest rate on these special treasury bonds to 99%? Problem solved, right? because SS would never go broke?
J. Ewing
P.S. More young people believe in UFOs than believe that they will collect from SS. They're probably right.
Hiram,
How would you get spenders to stop spending without raising the stakes?
J,
It looks like a pretty good investment for 50% of the population. And I am sure we will find a way to raise the interest rate or add to the trust fund. The alternative would not be acceptable to the general population, and they control the taxes and spending.
They will probably just start taxing the benefits on those that saved, therefore slowing the bleeding.
It looks to me that the only thing the SS security surplus of the past 25 years is good for is making a stronger case against cuts to the program in this time of large budget deficits. In hindsight it seems to be middle class workers were duped into creating the so called surplus, which in theory would be used to keep SS fully solvent but in practice just funded general fund programs like defense.
As I understand it one of the GOP preferences for decreasing the deficit (to which social security is now contributing) is to raise revenue from those who are too poor to pay income tax. It will be interesting to see whose taxes are raised and which programs are cut in this time of huge budget deficits.
How would you get spenders to stop spending without raising the stakes?
I don't quite understand the question. In terms of spending, given certain assumptions, basically that we don't leave old people out in the cold to die, much of the actual decision making is out of our hands. What I would do is find various ways to cut health care costs. But that's essentially a non-starter in political terms because any effort to do that would be blocked in the senate, as rationing, socialized medicine, death panel creating etc.
The other area where costs could be cut substantially is with respect to the military. But again, the politics are against it. We are in fact going in the other direction on that since Romney has pledged to raise military expenditures.
The political reality is, no one benefits in the short term from policies specifically intended to reduce the deficit, and that's why such policies are never implemented. Personally, I don't worry too much about deficits when the economy is in recession, and I will always worry about other things more. The Republicans claim to worry a lot about deficits, but for some reason, that worry isn't reflected in any of their policies. They favor tax cuts, increased military expenditures, and oppose any meaningful effort to cut health care costs. Given those plain realities, I regret to say, there are some skeptical souls among my own political persuasion who are shall we say, something less than convinced concerning Republican sincerity where deficit spending is concerned.
--Hiram
Laurie,
No one was duped, they just wanted lower taxes while keeping all their personal benefits. That is why I am somewhat serious that we should discontinue SS immediately. Why should we continue to pass this debt onto our kids? Of course that would mean a lot of unhappy savers, and a bunch of desperate poor folk.
Hiram,
I am supposedly one of them and I don't understand their reasoning. Cut taxes and increase military spending would make no sense to me.
John,
I was duped into paying higher FICA taxes the past 25 years with the idea that it would eventually help to pay my full retirement benefit. Now that SS is sort of in the red I have to rely on current and future congresses to come up with the additional $ fairly rather than raise the retirement age some more or cut my benefit. Btw in your last comment you sound more like your old self. I was starting to think you were going soft.
"I was duped into paying higher FICA taxes the past 25 years with the idea that it would eventually help to pay my full retirement benefit. Now that SS is sort of in the red I have to rely on current and future congresses to come up with the additional $ fairly rather than raise the retirement age some more or cut my benefit."
In political terms, to the extent of any duping, you might as who was the duper? Certainly not Social Security itself which has always provided us with accurate information. Was it perhaps those politicians and their kept media who told you year after year that Social Security had a trust fund, that it consisted of something other than promises, that these days, are trying to convert bonds into "IOU's" so that they can dishonor them? Along with the rest of America's debt which they certainly benefited from when they borrowed it? Money that pays for among other things, those soldiers, and sailors, marines and airmen, who keep them safe in their little beds at night?
--Hiram
Laurie,
Soft... Sometimes I err to that side. Then I look at my daughters and think about what our spending more than we are collecting is going to leave them with. Not a pretty picture and we are supposed to be the adults. I think I'll expand on this for my next post.
By the way, that's why the Conservatives call it a ponzi scheme. It has always relied on the working paying for the retired. Unfortunately there will soon be more retired and fewer workers...
Hiram,
Who is "they"? Shouldn't it be we?
All,
It seems we were underfunding the trust account.(ie interest not keeping up with payouts) I am sure there are many reasons. We save more people that end up going on disability. (ie healthcare) People live longer. Fewer middle class contributors? Therefore we have choices to make: retire later, payout less, add to trust fund form another source, artificially raise interest on the bonds, higher payroll taxes, etc.
I have no intention of dishonoring America's debt. If you want that done, "they" will have to do it.
We aren't really underfunding the account in the sense that anything here is unexpected. Back in 1983 when Ronald Reagan and associates reformed Social Security, they fully understood that inflows would exceed outflows for many years. But they also understood that because of the demographic trends, the aging of the baby boomers, that would reverse itself right about now. So that's why the excess was used be used to buy government bonds which would be sold when the time came to cover what would then be the net outflow. Back then, government bonds were seen as representing unbreakable promises. It didn't seem to occur to them that there would be a movement in the land who would seek to dishonor America. They were naive in that respect perhaps.
--Hiram
Again, there seems to be some confusion about the bonds in the SS "trust fund" (quotes intentional). They are "special" in that right now they can only be sold to the Trust Fund, and carry a fixed rate set by Congress. They are never traded on the open market and can only be redeemed by Congress. Therefore, since the FICA taxes actually go into the general budget and from there pay out to SS as well as all other things, and the bond redemptions also come out of the same general fund, the Trust Fund bonds are absolutely and simply a bookkeeping entry on the federal ledger, an IOU between we and us. That's why you have no claim on a SS benefit, because it's nothing but a promise, not backed by any asset.
What's funny is that, as Chile demonstrated, the trust fund DOES have value. The first step in their privatization was to distribute their trust fund bonds on a pro-rated basis, and when they did that, people immediately had an ASSET-- a government bond that could be traded or sold on the open market at any time.
I agree the best thing for all concerned would be to end FICA immediately, but replace the tax revenue lost with a less regressive tax like the FAIR tax or even flat tax. Then the SS law would automatically cause the "phase-out" of SS payments gradually over 40 years (based on what you paid in, remember, so the 25-year-old today pays in nothing and gets nothing out at retirement). If you wanted to mandate private accounts to make sure everyone saved for retirement, you could do that in addition, or not.
J. Ewing
Therefore, since the FICA taxes actually go into the general budget and from there pay out to SS as well as all other things, and the bond redemptions also come out of the same general fund, the Trust Fund bonds are absolutely and simply a bookkeeping entry on the federal ledger, an IOU between we and us
the same is true of any government bond you own.
-Hiram
Bear in mind, it's not the government who owes the national debt, it's the people of the United States who owe the debt. The government could fall, and the debt would still be owed.
--Hiram
Presumably the reason Reagan made them bonds is that he wanted them to be treated like bonds. In any event that's the deal he made then and it binds us now.
--Hiram
It seems to me in the short term SS will continued to pay full benefits and add to the deficit as bonds are redeemed to cover the operating shortfall. In the longer term- 5, 10, 20 years- something is going to have to be done with the deficit, which will certainly have to involve some mixture of deep program cuts and significant tax increases. The redeemable SS bonds both add to the deficit and hopefully protect the SS program.
The way to deal with the deficit, should that be our goal, is to cut military and medical costs. But in our political state of today, there is little support for cutting the military, (Republicans want to expand it), and any attempt to deal with medical costs is greeted with outraged cries of rationing, death panels, socialized medicine, etc.
The solutions are obvious. It's just that no one is interested in implementing them.
--Hiram
If the solutions are so obvious, pray tell how you cut medical costs without any form of rationing, and why would we care unless it was government paying those costs? We don't here much concern over the price of food or gasoline, other than as a failure of Obamanomics, because those are costs borne by individuals. If medical costs were likewise borne by individuals, choosing insurance for themselves as they saw fit, those costs wouldn't matter, either, and 75% of the federal debt+unfunded liabilities would disappear. THAT is an obvious solution.
J. Ewing
I think you are making the Liberals point for them. Many go hungry or do not have a car. Do we want to ration healthcare by income level?
Yes, we do. Health care benefits those whose health is involved, just like food or transportation. You pay for what you want and can afford. The alternative is to freeload off the rest of us, and that isn't right.
"Rationing" by cost isn't really rationing at all, you know. When prices go up, new providers enter the marketplace and prices go back down. Government rationing on the other hand, avoids these feedback mechanisms and therefore the only way to control cost is to limit the availability. Do you really want some bureaucrat deciding who lives and who dies?
J. Ewing
Do you really want some bureaucrat deciding who lives and who dies? Maybe...
Is this any worse than having luck make the choice?
I was lucky enough to be born into a blessed life. Hard working, bright, caring, responsible and relatively well off parents. Healthcare has always been available and easy. I am very grateful for this excellent fortune, however I realize that it was as much luck as hard work.
I realize that many less lucky people simply can not get their healthcare, especially not preventative care. So rationing may not be the perfect word, yet healthcare is being withheld for reasons that are outside of the patient's control. Seems pretty similar to what you would consider rationing.
The decision is just left to the flip of a coin instead of left to pre-existing documented rules...
So, everything you have achieved in life, all of your successes, were pre-ordained at the moment of your birth? I find that very difficult to believe, and I think it is a gross insult to all of those people who have pulled themselves up out of poverty, or somehow fallen into it only to pull themselves back out. Yes, people are advantaged by their birth, and further advantaged by their upbringing, but you are still absolutely responsible for what you make of yourself and for paying your own way. If you really, really can't, somebody will help you, but government isn't somebody.
J. Ewing
Of course not, however it was mine to lose. I never had to struggle too hard to get ahead. And since I come from a long line of work aholics, working was just a normal part of my existence. Also, I was given the gift of hope and praise by my Parents from the day I was born.
And yes there are people who escape generational poverty, unfortunately there are not enough of them... Or we would not be discussing it.
Actually, there would be a lot MORE people escaping generational poverty if government had not been subsidizing it all these years, and then telling its victims that they were somehow "entitled" to the fruits of others' labor. To me that is the greatest crime/shame/scandal/stupidity-- pick your own pejorative-- of the last half-century, that we have created a permanent dependent class without the skills necessary to be independent.
J.
I wonder... It seems this situation pre-dates the last 50 yrs.
Wiki Hooverville
Busn Insider Wealth Info
I don't think so. You can almost point to the date; it was when the "War on Poverty" began. We started out believing that if we gave poor people a government check for doing nothing that they would decide to immediately rush out and find a high-paying job for themselves, rather than sit back and let the checks roll in. It is the usual liberal mindset at work, which says that the world – human nature and the laws of physics and chemistry – must work the way they want it to rather than the way it really does.
J. Ewing
A look at the latest heritage charts pinpoints the start of the entitlement society and the unsustainable growth of that part of the federal budget, now over 50%.
Do you have a url for these charts?
Do you have a url for these charts?
http://www.heritage.org/federalbudget/
Heritage Link
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