Straight Dope Message Board

[septimus]

Resolved: The first $2000 of Social Security tax should be eliminated.

Someone earning $20,000 per year pays about $1500 in payroll taxes, and another $1500 is paid by his employer. (If the person is self-employed he pays the entire $3000.) If I am elected this total tax bill will be reduced by $2000. (Whether the savings come from employee or employer portions can be ignored for now; it is a detail of secondary importance.)

My proposal will have several advantages:

• It will represent, in effect, a $1 per hour wage hike for everyone. A wage hike that will not be paid by the employer; instead it will encourage hiring.
• It's a step in the direction of Basic Income, an idea which is gathering support. Yes, it's targeted at workers specifically rather than everyone; but workers have costs that the unemployed do not have: commuting costs, childcare, etc. It is a step toward Basic Income that incentivizes work rather than sloth.
• It is extremely simple. Some steps toward income equality require new bureaucracies, fraud preventions, etc. My idea will require only a trivial change to payroll software, and perhaps a new line on Form 1040.
• The programs funded by payroll taxes, in particular Social Security, would function exactly as before. Individuals would be credited with the (up to) $2000 not paid. The shortfall in the SocSec Trust Fund would be made up from other government revenue (see below).

This idea is so simple, so useful, and so correct that I'm astounded only I am proposing it. (I guess other politicians cannot take time away from their busy schedule of deciding whether our AR-15s need 15-bullet magazines, or if 14 bullets are enough.)

The lost funding will have to come form somewhere, right? Yes.

Unlike most of the people who call themselves Fiscal Conservatives™, I am actually a fiscal conservative. When all my programs {A,B,C,...} are passed, the fiscal effect ΔA + ΔB + ΔC + ΔD + ... will NOT increase the deficit. Just the opposite, in fact; I want ΔA + ΔB + ΔC + ΔD < 0 to reduce the deficit and reverse the huge debt accumulation due to the corrupt policies of the so-called "Fiscal Conservatives™."

For example, one might imagine two expensive programs (A,B) and two tax hikes (C,D), which would balance out: ΔA + ΔB + ΔC + ΔD = 0. However, experience has shown that simpler arithmetic is needed (ΔA + ΔB = 0), to conform with a sophomoric understanding of "revenue neutrality." Thus, I mention a large carbon tax, perhaps in a ballpark to work out to $1 per gallon of gasoline. This should be at least enough to match the SocSec shortfall. But please start a new thread to debate carbon tax; this is an independent matter mentioned here only to expunge whingeings about "revenue neutrality."

Would a carbon tax eat up the $2000 SocSec savings of workers with very long commutes, very inefficient vehicles, or with high home-heating needs? Sure! But that's the very purpose of a carbon tax: to create a strong disincentive against the behaviors that threaten to ruin our habitat, to account for the otherwise-unafforded destruction of our commons.

So. Who will join me in a call to eliminate the first $2000 of SocSec tax? This is a good simple idea, which should gain traction. Let's not let the Rs jump on the idea while the Ds are preoccupied with irrelevant trivia.

(A zombie thread was recently revived, stimulating this OP.)

Originally Posted by From that Zombie thread

The reason politicians are always screaming to raise the minimum wage? Not for the poor stiffs making it. Brings up the take from the payroll tax.

I am saddened when I witness this level of thinking. I am as cynical as most, but I try to spend my cynicism wisely, not on preposterous gibberish.

Originally Posted by Habeed

Uh, isn't capital gains...like if you sell a company to someone else for millions of dollars...taxed at only 15% and it is not subject to the self-employment tax? So when Warren Buffet points out he pays less taxes as a percentage of income than his secretary, this is not because he's using some crazy tax loopholes?

Yes. Note that Buffet's paying at a lower rate than his secretary doesn't have anything to do with his massive unrealized gains. He pays a lower rate than his secretary on his salary and realized gains. Right-wingers like to shriek and whine and pretend disbelief when presented with this uncomfortable fact, but it is simple truth. The $2000 rebate I propose will help address this iniquity. 1

[Textual Innuendo]

Well, you've got my vote - I can get behind both sides of that platform.

Now you just need to stand on the right street corners to get some lobbyists to give you ~$2M (or $10M if you're aiming for Senator, or ~$500M for President) and we'll be good to go! 2

[jasg]

I will vote for you too but only if you also eliminate the income cap on SS taxes. 3

[Procrustus]

Originally Posted by jasg

I will vote for you too but only if you also eliminate the income cap on SS taxes.

How about we keep the cap where it is and start taxing again at about $500,000? 4

[WillFarnaby]

Lowering taxes is a good idea. Shuffling them around is ok, but a waste of time in most cases. 5

[Fear Itself]

Originally Posted by Procrustus

How about we keep the cap where it is and start taxing again at about $500,000?

Because I'm not in that donut hole. 6

[septimus]

Yes, there's a lot of room to work on the details: make the rebate more gradual, and perhaps raise the cap on taxed income. I wanted to express the basic idea as simply as possible.

Andrew Yang's grandiose proposal is getting a lot of support but has no chance of passage in a foreseeable future. My proposal is a step in the right direction which is not so far-fetched. This plan, combined with single-payer healthcare, would go a long way to helping lower-income families share the American dream. Note that taxpayer-funded healthcare, like the SocSec rebate, would make it less expensive for employers to hire American workers. 7

[Manlob]

Social Security is already unsustainable without additional unspecified changes. Reducing almost every full time worker's contribution by $2000 just increases the shortfall.

Is the topic of this debate that the shortfall should be covered by new taxes obtained from something other than worker paychecks? This would be quite a change, since Social Security is almost entirely funded by the payroll tax. 8

[Wesley Clark]

Since there are roughly 150 million workers in America that will cost about $300 billion a year in lost revenue. That is roughly 1/3 of the entire ss tax revenue.

Americans use about 150 billion gallons of gasoline. A year so it's actually a $2 per gallon tax we'd need to implement to pay for it. So gas would go up to $5 a gallon. Also when people switch to electric cars or fuel efficient cars we'd need another way to regain the lost revenue.

Foe most people it'll be a wash until they buy a new car. Then they may save a few hundred dollars a year.

Plus gas taxes are more noticeable than payroll taxes. Obama cut the ss contribution from 6.2% down to 4.2% as part of the stimulus. Most people didn't notice the tax cut. But people will notice a gas tax hike. 9

[Wesley Clark]

Originally Posted by Procrustus

How about we keep the cap where it is and start taxing again at about $500,000?

In America we confuse the 1% and the 0.1%.

The 1% (300-600k on household income) aren't the problem. They pay a ton in taxes. A household with a doctor and a lawyer making 500k a year is paying about 200k a year in taxes.

However the 0.1% and higher are making out like bandits. They pay the dividend and capital gains tax of 15% while the doctors and lawyers are paying the income tax rate of 35-40%.

So I agree, a donut hole is a good idea. Also tax all investment income above a certain cutoff for social security. Also a wealth tax like Warren proposes. 10

[Bill Door]

To me it makes more sense to make up the shortfall by either raising the cap on taxed income or by putting social security taxes on unearned income or both. Probably both. It seems silly that someone who makes income by mopping floors has to pay social security taxes on every dollar, yet someone who earns $200,000 in salary and another $300,000 in dividends, rent, and capital gains only pays social security taxes on 20% of their income. 11

[UltraVires]

Originally Posted by septimus

Yes. Note that Buffet's paying at a lower rate than his secretary doesn't have anything to do with his massive unrealized gains. He pays a lower rate than his secretary on his salary and realized gains. Right-wingers like to shriek and whine and pretend disbelief when presented with this uncomfortable fact, but it is simple truth. The $2000 rebate I propose will help address this iniquity.

It is not an inequity. Buffett's secretary will get social security benefits when she retires. Buffett will not get any social security benefits on his capital gains.

That's how the system was designed: you get what you pay for. You don't pay you don't get. Your proposal, and any proposal that removes the cap on the tax without increasing the benefits, turns it into a general welfare program which it has never been.

You may argue that Buffett does not need social security benefits, but then we are just back to the tired old argument of taxing the rich more. 12

[septimus]

Originally Posted by Wesley Clark

... Americans use about 150 billion gallons of gasoline. A year so it's actually a $2 per gallon tax we'd need to implement to pay for it. So gas would go up to $5 a gallon....

I was estimating that half the carbon tax revenue would come from coal, natural gas, etc. so $1/gallon on gasoline would be sufficient.

And, as others point out, this could be further reduced by raising the cap on taxable income. Other taxes I support to help cover shortfalls are increased taxes on dividends and capital gains for the wealthiest taxpayers, and perhaps Tobin financial transaction taxes, etc.

Yes, even a 50¢ tax on gasoline would be perceived by some as onerous — though even a $2 tax would leave U.S. prices far below Europe's! — but if such smallish taxes cannot be countenanced, then the U.S. is simply not serious about addressing climate change. 13

[Fear Itself]

Originally Posted by UltraVires

You may argue that Buffett does not need social security benefits, but then we are just back to the tired old argument of taxing the rich more.

You mean tax them the same. They are taxed at a lower rate than the working class. They should be taxed at a higher rate, because they benefit from a government of laws more than most people. You may be tired of hearing it, but the truth isn't going anywhere. 14

[DinoR]

SS is a flat tax for most households. It's only above the income cap where it's regressive nature kicks in. A sale/use tax is just plain regressive. Helping low wage workers by likely making the overall federal tax system less progressive seems counterintuitive.

There's a systemic problem that would need to be addressed. Many people have multiple employers during a single tax year. There's currently no way for employers to track what has been paid in taxes. They simply collect FICA taxes on every dollar you earn unless you exceed the cap based on wages they've paid to a worker.. Those that make enough, combining employers, that they exceeded the cap can file on their 1040 to get refunded any overpayment. Those are people well above median income already and it's dealt with by refund not a tax bill. Now imagine someone with three jobs during a year. Maybe it's a part-time job for part of the year in addition to a switch between two primary jobs during mid-year. All of them grant the $2,000 exemption. Potentially little or no social security taxes are collected for low wage workers. At year end they could face a big tax bill. Making systemic changes that starts producing big tax collections on the working poor every April is not what I would call help. Coming up with a solution that is easy for small businesses to comply with cheaply isn't necessarily trivial. 15

[Wesley Clark]

Originally Posted by septimus

I was estimating that half the carbon tax revenue would come from coal, natural gas, etc. so $1/gallon on gasoline would be sufficient.

And, as others point out, this could be further reduced by raising the cap on taxable income. Other taxes I support to help cover shortfalls are increased taxes on dividends and capital gains for the wealthiest taxpayers, and perhaps Tobin financial transaction taxes, etc.

Yes, even a 50¢ tax on gasoline would be perceived by some as onerous — though even a $2 tax would leave U.S. prices far below Europe's! — but if such smallish taxes cannot be countenanced, then the U.S. is simply not serious about addressing climate change.

The money you raise from the gasoline taxes will just be used to replace the social security shortfall. It won't be used for climate change.

Dealing with climate change would be best done with increased taxes on pollution via fossil fuel taxes, CO2 taxes, etc. to fund subsidies and R&D into clean energy. 16

[septimus]

Originally Posted by Wesley Clark

The money you raise from the gasoline taxes will just be used to replace the social security shortfall. It won't be used for climate change.

Dealing with climate change would be best done with increased taxes on pollution via fossil fuel taxes, CO2 taxes, etc. to fund subsidies and R&D into clean energy.

Confused. Money doesn't have to be spent where it's earned. The profits that Procter & Gamble make from toothpaste don't need to be spent on toothpaste development; they can be spent marketing the new P&G detergent or potato chip. Government spending needn't match up with an associated revenue source.

The reason a carbon tax addresses climate change is because it changes incentives. Someone debating what kind of car to buy will be influenced by the price of gasoline.

Yes, if the carbon tax is successful in reducing the use of carbon fuels, then that revenue source will dry up, and another way must be found to meet the SocSec shortfall. But that's not a deal-killer for the SocSec rebate. My proposal is more modest than Yang's or Medicare-for-all or even, for that matter, the stupid Bush-Cheney War. Let's not get hung up on exactly how to fund it.

I don't see multiple employers being a big problem. The employer would estimate the SocSec tax as best as he can given information employee provides. This is already the way Income Tax withholding works. It would probably be the employee portion, not the employer portion, that gets the rebate, though details are subject to refinement. (For starters, rebate might be based on wage level — someone working two $12/hour jobs might get a bigger rebate than someone working one $25/hour job.) 17

[Balthisar]

Originally Posted by jasg

I will vote for you too but only if you also eliminate the income cap on SS taxes.

Okay, but also allow us to collect on that uncapped tax when we start collecting. 18

[Wesley Clark]

Originally Posted by septimus

Confused. Money doesn't have to be spent where it's earned. The profits that Procter & Gamble make from toothpaste don't need to be spent on toothpaste development; they can be spent marketing the new P&G detergent or potato chip. Government spending needn't match up with an associated revenue source.

The reason a carbon tax addresses climate change is because it changes incentives. Someone debating what kind of car to buy will be influenced by the price of gasoline.

Yes, if the carbon tax is successful in reducing the use of carbon fuels, then that revenue source will dry up, and another way must be found to meet the SocSec shortfall. But that's not a deal-killer for the SocSec rebate. My proposal is more modest than Yang's or Medicare-for-all or even, for that matter, the stupid Bush-Cheney War. Let's not get hung up on exactly how to fund it.

I don't see multiple employers being a big problem. The employer would estimate the SocSec tax as best as he can given information employee provides. This is already the way Income Tax withholding works. It would probably be the employee portion, not the employer portion, that gets the rebate, though details are subject to refinement. (For starters, rebate might be based on wage level — someone working two $12/hour jobs might get a bigger rebate than someone working one $25/hour job.)

So are you saying $300 billion in social security taxes combined with $300 billion in fossil fuel taxes and an additional $300 billion in other taxes to fix the social security shortfall? Is the gasoline tax going to be used to subsidize the renewable energy sector or used to fund social security? 19

[septimus]

As I say in OP, it's an unnecessary distraction to feel a need to associate specific revenue sources with specific spending. Government funds should be spent where they're necessary or most useful. Government should raise funds where convenient or where the tax serves a public purpose (e.g. creating a useful disincentive). (When you buy a set of tires, do you need to know whether you're sepnding the dividends from your P&G stock, or spending your overtime checks from the holidays?)

Increasing the prices of undesired energy, e.g. carbon-based, has an effect similar to lowering the prices of desired energy. If the carbon tax is set appropriately, special subsidies on "green" energy won't be necessary — let the free market work.

And energy conservation (the avoidance of both carbon and green energy) is worthwhile. This leads to the argument that raising the carbon-fuel price is better than subsidizing green energy. 20

[WillFarnaby]

The reason why SS has been an effective means for wealth extraction from the productive sector is threefold. Firstly, it is partially hidden. Most common folk do not know that half of the tax is levied on their employer. Secondly, withholding is effective because it extracts loot before it touches the hand of the common folk. The common folk have been conditioned to give Uncle Sam first dibs. It hurts less to give up something you never had. Lastly, SS is billed as insurance premiums. There is a popular ideological support for the program. The program is not an insurance program, but a standard wealth transfer program. Opposition to SS tax has been neutralized quite well. Your introduction of blatant, in-your-face tax increases will be noticed by the common folk, will come from money they have in their hands, and will be associated with politically charged “green” ideology. For these reasons, I don’t think the statist should support your proposal. For me, as I said, it is no more than a shuffling around of taxes, and I don’t take a particular interest either way. 21

[Ruken]

The proposed scheme will reduce our tax bill by $4k, offset only minimally by carbon taxes due to a nuke-heavy grid mix and a public transit commute.

We do not need this. Oh, I'm happy to have more money in my pocket. But as far as people who need help are concerned, we're pretty low on the list.

Schemes like EITC are more targeted at people who actually need help. EITC can more than offset payroll taxes for some people. The main problem is that EITC is only realized annually after filing, whereas the proposed is realized continuously over each paycheck.

Of course, people are dumb when it comes to tax refunds, see articles this spring about people being disappointed about their tax returns [sic] shrinking. 22

[Wesley Clark]

Originally Posted by septimus

As I say in OP, it's an unnecessary distraction to feel a need to associate specific revenue sources with specific spending. Government funds should be spent where they're necessary or most useful. Government should raise funds where convenient or where the tax serves a public purpose (e.g. creating a useful disincentive). (When you buy a set of tires, do you need to know whether you're sepnding the dividends from your P&G stock, or spending your overtime checks from the holidays?)

Increasing the prices of undesired energy, e.g. carbon-based, has an effect similar to lowering the prices of desired energy. If the carbon tax is set appropriately, special subsidies on "green" energy won't be necessary — let the free market work.

And energy conservation (the avoidance of both carbon and green energy) is worthwhile. This leads to the argument that raising the carbon-fuel price is better than subsidizing green energy.

I disagree that it doesn't matter where funding comes from. Social security is budgeted differently than general funds and the system can't be changed via reconciliation like general funds can.

As far as higher gas prices, how much do higher prices lead to more fuel efficient vehicles? California gasoline is a dollar a gallon more than the Midwest but I don't know how much lower demand is there. The average America uses about 500 gallons a year. That's $1000 a year in taxes if they pay an extra two dollars a gallon. Will that extra grand a year cause them to go out and buy a $35,000 electric vehicle? I don't know but fuel consumption tends to be inelastic.

I guess my point is that ss is already underfunded, so a ss tax cut isn't a good idea. If anything we need higher ss taxes and to eliminate the cap to keep the system solvent.

As for renewable energy I think taxes on pollution are good but the taxes need to fund renewables. Ideally as demand grows for renewables they get cheaper and cheaper until you don't need subsidies anymore. The first teslas were a hundred grand, now they're a third of that price.

I believe the US only spends 40-50 billion a year on clean energy, and only about 5 billion on energy R&D (which I believe Includes dirty and clean research).

A tax of even 50 cents a gallon would raise about 80 billion a year which would cause massive increases in R&D as well as clean energy spending, especially when you consider public private partnerships. An extra 80 billion could lead to an additional 100-200 billion in private spending on top of those public funds. For technologies on the brink of being market priced, that extra subsidy could push a lot of private investors over the edge into investment.

So I guess to me subsidizing clean energy is more important than taxing dirty energy. Gas prices going up by fifty cents a gallon would barely change gasoline consumption, but if all that money went to clean energy we'd go from 40-50 billion a year on clean energy upto maybe 300 billion a year. 23

[Ruken]

Originally Posted by Wesley Clark

As far as higher gas prices, how much do higher prices lead to more fuel efficient vehicles? California gasoline is a dollar a gallon more than the Midwest but I don't know how much lower demand is there. The average America uses about 500 gallons a year. That's $1000 a year in taxes if they pay an extra two dollars a gallon. Will that extra grand a year cause them to go out and buy a $35,000 electric vehicle? I don't know but fuel consumption tends to be inelastic.

CA has the highest EV and HEV penetration of any state. No, people don't change their miles driven overnight, but rational and informed consumers factor in transportation costs when purchasing vehicles, choosing housing, etc

Originally Posted by Wesley Clark

A tax of even 50 cents a gallon would raise about 80 billion a year which would cause massive increases in R&D as well as clean energy spending

No it wouldn't. 24

[Wesley Clark]

No it wouldn't? The tax alone is double our total renewable spending.

Do you have a better argument for why it wouldn't. 25

[Ruken]

Originally Posted by Wesley Clark

No it wouldn't? The tax alone is double our total renewable spending.

Do you have a better argument for why it wouldn't.

Perhaps, having lived in DC for some time, I assume that Americans have a basic understanding of how government appropriations work when in fact they do not.

Unless of course you were suggesting that the increased taxes would change consumer behavior, which would in turn spur private sector R&D spending.

Or maybe you're proposing a federal trust fund for earmarked receipts. Although as things stand now, that fund could just run a surplus.

But simply raising taxes on A does not cause spending on B. Our friends on the hill and their neighbor on PA Ave NW could double renewable energy research spending tomorrow, carbon tax or no carbon tax 26

[Wesley Clark]

SCHIP is funded in part by taxes on cigarettes. Medicare is funded in part by a dedicated payroll tax. I fail to see why a fuel tax, CO2 tax, cap and trade tax etc can't be earmarked to fund subsides and tax credits for renewable energy. 27

[DrDeth]

My proposal: All wages gets taxed, no cap. The cap on how much you can get paid is slightly raised. This would get rid of any anticipated shortfall for many decades.

Also- Soc Sec would not taxable. Nor unemployment.

Capital gains is taxed just like any other income. 28

[Ruken]

Originally Posted by Wesley Clark

SCHIP is funded in part by taxes on cigarettes. Medicare is funded in part by a dedicated payroll tax. I fail to see why a fuel tax, CO2 tax, cap and trade tax etc can't be earmarked to fund subsides and tax credits for renewable energy.

It can be, but the federal appropriations for none of those are "caused" (your verb, my tense) by current receipts of any of those taxes.

#notevenwrong 29

[bizerta]

Let's say a person earns $12k per year. If they never pay into the Social Security ("SS") system, as per the OP, should they be allowed to collect SS benefits when they retire?

The SS system is a forced retirement system. It's not a tax, per se. None of the money goes for highways, defense, or education. Let me show some numbers.

Single person A earns $10k, self employed, and pays $1500 in SS tax. He pays no income tax because his wages are so low, but he does qualify for a $401 earned income credit. Net payout = $1099.

Single person B earns $110k, self employed. He pays $16500 in SS tax, but $8250 of that is taxable forcing him to pay an additional $2062 in income taxes for a total of $18562. B earns 11 times as much as A, but pays 17 times as much in SS tax. This is just SS tax. B still has other income taxes to pay.

Now, fast forward to retirement. A would qualify for SS payout of $8350 per year, which is 84% of his working salary, all of which is tax free. B would qualify for $28350 in annual benefit, but $24097 of that is taxable. In the 15% bracket, that means that B nets $24376 per year.

To summarize: B pays 17 times as much as A while they are working, but B receives less than three times as much after retirement.

In addition, if both have one child, A gets $3400 in earned income credit which is $1900 more than his SS tax. B gets nothing.


If socialism is what you want, move to Cuba or North Korea and experience it first hand. 30

[Procrustus]

Originally Posted by bizerta

Let's say a person earns $12k per year. If they never pay into the Social Security ("SS") system, as per the OP, should they be allowed to collect SS benefits when they retire?

The SS system is a forced retirement system. It's not a tax, per se. None of the money goes for highways, defense, or education. Let me show some numbers.

Single person A earns $10k, self employed, and pays $1500 in SS tax. He pays no income tax because his wages are so low, but he does qualify for a $401 earned income credit. Net payout = $1099.

Single person B earns $110k, self employed. He pays $16500 in SS tax, but $8250 of that is taxable forcing him to pay an additional $2062 in income taxes for a total of $18562. B earns 11 times as much as A, but pays 17 times as much in SS tax. This is just SS tax. B still has other income taxes to pay.

Now, fast forward to retirement. A would qualify for SS payout of $8350 per year, which is 84% of his working salary, all of which is tax free. B would qualify for $28350 in annual benefit, but $24097 of that is taxable. In the 15% bracket, that means that B nets $24376 per year.

To summarize: B pays 17 times as much as A while they are working, but B receives less than three times as much after retirement.

In addition, if both have one child, A gets $3400 in earned income credit which is $1900 more than his SS tax. B gets nothing.


If socialism is what you want, move to Cuba or North Korea and experience it first hand.

Person A is probably not going to make it to retirement. $10,000 per year isn't enough to survive on in most places, especially if he's paying $1,500 in social security taxes off the top. 31

[Fear Itself]

Originally Posted by bizerta

The SS system is a forced retirement system. It's not a tax, per se. None of the money goes for highways, defense, or education.

In theory. In reality, Congress borrowed virtually all of the Social Security trust fund to pay for everything else, with no plan to pay it back. If the Social Security trust fund had not been raided, it would not be going broke. 32

[Ravenman]

Originally Posted by Fear Itself

In theory. In reality, Congress borrowed virtually all of the Social Security trust fund to pay for everything else, with no plan to pay it back. If the Social Security trust fund had not been raided, it would not be going broke.

This is flat-out wrong, and gross misinformation. The contents of the Trust Fund are guaranteed by the Constitution. In our legal system, there is literally no higher form of legal guarantee that can be provided.

The problem with the Trust Fund is that Social Security taxes have not been sufficient to replenish the fund at the rate needed to keep up with Baby Boomer retirements, which does NOT/NOT have anything at all to do with the misinformation you posted. 33

[septimus]

Originally Posted by bizerta

Let's say a person earns $12k per year. If they never pay into the Social Security ("SS") system, as per the OP, should they be allowed to collect SS benefits when they retire?
...
If socialism is what you want, move to Cuba or North Korea and experience it first hand.

Your question was asked and answered in OP:

Originally Posted by septimus

• ...
• The programs funded by payroll taxes, in particular Social Security, would function exactly as before. Individuals would be credited with the (up to) $2000 not paid. The shortfall in the SocSec Trust Fund would be made up from other government revenue (see below).

And ... since it seems your idea of intelligent debate is to invoke the "Move to North Korea" card ... Sklink! 34

[Balthisar]

Originally Posted by Ravenman

This is flat-out wrong, and gross misinformation. The contents of the Trust Fund are guaranteed by the Constitution. In our legal system, there is literally no higher form of legal guarantee that can be provided.

Uh, whooshing? I'm not aware of any mention of this in the Constitution. Well, not our Constitution, anyway. 35

[Ravenman]

Originally Posted by Balthisar

Uh, whooshing? I'm not aware of any mention of this in the Constitution. Well, not our Constitution, anyway.

14th Amendment, section 4, clause 1. 36

[bizerta]

Originally Posted by septimus

Your question was asked and answered in OP:


And ... since it seems your idea of intelligent debate is to invoke the "Move to North Korea" card ... Sklink!

If I take the sarcasm out of that remark, what I meant was that socialism doesn't work as evidenced by Cuba and North Korea.

As I pointed out in my examples, the SS system is already heavily skewed towards low income earners. (You did not dispute any of my figures) You just want to make it more socialist.

FYI For a self-employed person with one child earning $20100, the SS tax is 15%, or $3015. The earned income credit is also $3015 which does come out of the general fund paid my taxpayers. Isn't that enough socialism? 37

[septimus]

@ Bizerta — You have an unexplained aversion for what you call "socialism." I'll guess this is largely in response to the well-known bad incentives of Marxism.

However, my scheme increases the incentive, at least at the bottom, to work and earn, since the first $2000 of tax isn't paid. (Yes, the rebate increases through another mechanism if you have a child.)

Over the past 40 years or so, the real incomes of average workers have increased very little relative to the huge income increases for the wealthiest 0.1%. Before we can proceed, , we need to understand your feelings about this huge increase in income and wealth inequality. Please pick one:

A. The inequality is bad, for whatever reason(s), and policy makers should look for solutions, e.g. in tax policies, or education funding etc. However the scheme in OP is bad because ___________.
B. It is natural for superior persons to get superior income. Deliver much of the excess to the low earners, and the money will soon be back in the hands of the high earners anyway.
C. Que será, será. Whatever income or wealth distribution is achieved through freedom, through the inexorable workings of an unregulated free market, is ipso facto optimal. Government meddling generally gives inferior results.

38

[Ludovic]

Originally Posted by Balthisar

Okay, but also allow us to collect on that uncapped tax when we start collecting.

I'd agree to this because at the high end, the taxees get back less than they pay in due to Social Security's progressive nature, but I see no reason to arbitrarily cap the collection beyond this. After a decade or so it would achieve buy-in from the middle aged and older wealthy who would not want to harm Social Security because it would hurt their payouts. 39

[jasg]

Originally Posted by bizerta

The SS system is a forced retirement system.

No, it is not and was never intended to be a retirement system.

It is what the rest of the developed world considers 'social insurance'. It protects your dependents in case of your death, you from disability and from abject poverty in old age. 40

[Balthisar]

Originally Posted by Ravenman

14th Amendment, section 4, clause 1.

Yeah, I don't think that that means social security is guaranteed. 41

[Ravenman]

Originally Posted by Balthisar

Yeah, I don't think that that means social security is guaranteed.

It doesn't mean benefits are guaranteed. It means the debt instruments that compose the Trust Fund are constitutionally guaranteed, just like all other lawfully issued debt of the United States. 42

[septimus]

Originally Posted by Fear Itself

In theory. In reality, Congress borrowed virtually all of the Social Security trust fund to pay for everything else, with no plan to pay it back. If the Social Security trust fund had not been raided, it would not be going broke.

This confused mind-set always intrigues me. How do you think the SocSec Trust Fund should have maintained its huge surplus? Debt issued by some other country or corporation? Precious metals? One Doper actually suggested that the money should be kept as Benjamins (under a mattress?) since cash is 'real money' compared with U.S. Treasury bonds. (Betting on the stock market would be a popular choice, but we'll want a new thread to pursue that tangent.) 43

[Balthisar]

Originally Posted by Ravenman

It doesn't mean benefits are guaranteed. It means the debt instruments that compose the Trust Fund are constitutionally guaranteed, just like all other lawfully issued debt of the United States.

Well, I don't think anyone is disputing that. In the context of the conversation, when people say "the trust fund is empty," they're worried about their benefits. 44

[l0k1]

I think that we should lift the cap on FICA taxes, make them bracketed using the same brackets that we use for income tax (different rates) and cap the social security trust fund at some reasonable reserve rate. Right now we could stop collecting social security taxes, and still pay benefits for at least 2 years. Having a 200% reserve is dumb. It should be closer to 25%.

And as far as using the trust fund goes. It's a debt. The government pays off debts, and creates new debt every single day. If we need to honor debt to the public that is held in the social security trust fund, we just sell more bonds to other people. The net result on the national debt is zero dollars. And the debts we sell, are at a much lower interest rate than the debt held by social security. And we always, always, always, find buyers for our debt. We don;t even have to try. As soon as we put debt on the market, even if we are offering interest less than inflation, someone buys our debt.

If a private company had access to that kind of credit, they would borrow all the money and use it to invest in the company, knowing that the investment would expand at a rate higher than the negative interest they were paying. 45

[Ravenman]

Originally Posted by Balthisar

Well, I don't think anyone is disputing that. In the context of the conversation, when people say "the trust fund is empty," they're worried about their benefits.

But that's factually incorrect. The Trust Fund is not "empty" or anything like it because "Congress raided it." If "Congress had not raided it" (which is also factually incorrect but I'll play along for the moment) and the Trust Fund was comprised of 100% cold hard cash, the risk to benefits would be exactly the same. That's because the threat to benefits is that assets of the Trust Fund -- whether bonds, cash, gold, cocaine, whatever -- are being drawn down faster than deposits are coming in. That's because of the current tax rates and the growing payments to retirees. It has literally nothing to do with what form the assets are in. 46

[l0k1]

But the Trust Fund isn't being drawn down. Go to the website and you will see surplus after surplus since 1983 or so. The Trust Fund keeps getting bigger.

The threat to benefits is Congress deciding that we are not entitled to them. It is a political threat, not an accounting threat. 47

[spifflog]

Originally Posted by l0k1

And as far as using the trust fund goes. It's a debt. The government pays off debts, and creates new debt every single day. If we need to honor debt to the public that is held in the social security trust fund, we just sell more bonds to other people. The net result on the national debt is zero dollars. And the debts we sell, are at a much lower interest rate than the debt held by social security. And we always, always, always, find buyers for our debt. We don;t even have to try. As soon as we put debt on the market, even if we are offering interest less than inflation, someone buys our debt.

If a private company had access to that kind of credit, they would borrow all the money and use it to invest in the company, knowing that the investment would expand at a rate higher than the negative interest they were paying.

You waive away any consequences of public debt as if there is nothing to be concerned with. Interest on the debt in FY20 is now projected at 10%, up from the 9% in FY19. And this is in a time when we borrow money for essentially free. God forbid that the cost of borrow money goes up and we’ll see that skyrocket. At some point it will push other things that we’d like to do out of the budget. And the items that we’d like to fund, college debt, increase Medicare, infrastructure? They won’t be funded because we can’t afford it.

Just borrowing money and don’t worry about it because you can always borrow more tomorrow isn’t a good plan for your own finances, and it isn’t good for our public finances either.

You say we need to honor our debt to the public. That sounds great. But it’s a promise or entitlement that you’re talking about. And at some point, when the money runs out, you just won’t be able to write the check. 48

[septimus]

One or two of you is conflating the SocSec and Medicare obligations to the public, with the U.S. Treasury debt held by the Trust Fund. The two are related only in the sense that overall increases in federal financial obligations may become a problem in future(*).

One way to decrease federal deficits is to institute new taxes. Higher taxes on the payrolls paid to high earners have been proposed in this thread, though I would prefer more general hikes on earned, capital gains, and inherited income. However in OP I recommended specifically a tax on carbon (and gasoline). If this doesn't meet with support, then you'all are just not serious about deficit reduction.

* Offtopic: The dollar and dollar-based assets remain safe-haven investments especially with lack of vigor in other economies. We are engaged in a real-world experiment to see if this prestige status can be maintained if the U.S. Government becomes increasingly irrational. 49

[Ravenman]

Originally Posted by l0k1

But the Trust Fund isn't being drawn down. Go to the website and you will see surplus after surplus since 1983 or so. The Trust Fund keeps getting bigger.

The threat to benefits is Congress deciding that we are not entitled to them. It is a political threat, not an accounting threat.

The Trust Fund WILL be drawn down. Except for the high employment figures right now, there'd be no question that we would be drawing it down today. You'll notice in those same statistics that annual growth of the Trust Fund has slowed to 1% or less. For 2019, the Trust Fund is projected to grow by one tenth of one percent.

If you think it's going to keep growing for the foreseeable future, you are literally alone in that view. 50