That’s true.
The idea that Social Security is a savings account has always been a fraud. To paraphrase Adam Smith, the wealth of a nation is the product of the labor of its citizens. Collectively, a nation can’t ‘save’ for the retirement of its citizens, because the goods and services needed by retirees will have to be produced when they’re needed. A simple thought experiment: everybody retires simultaneously. How much money do they need to do it?
You’re absolutely right. Social Security is nothing more or less than a regressive tax.
The maximum SS benefit is about $2600. The average is about $1300. (That’s per person.) If I was free of debt and owned my own house, I could live on $1300. But I wouldn’t be averse to raising the average payout.
Social Security is a tax. It always has been. It currently makes up about 34% of all government revenue, and it’s mainly paid by middle and lower income workers. Which is why Republicans like to talk about the 46% of government income that comes from the income tax, instead.
It certainly wouldn’t make it through the current Congress.
But you should also consider that if SS taxes were applied to all income, they would be substantially lower than they are now. A ballpark estimate would be a 50% less.
For small business owners, that would be a substantial benefit.
Social Security is certainly a tax. But it has always been a tax where the government has entered an agreement to repay to you a fair portion of your contributions in retirement. As you said, the benefits max out at a certain point, and therefore we do not require contributions above that point. That is fair to everyone. How would it be fair if someone made $50 million/year and they paid SS tax on the entire amount of that income just to get $2600 a month in return?
I don’t think many on the left worry about this type of fairness, but it has always been a part of the social security system.
Not understanding the difference between life expectancy and the number of years you can expect to live once you’ve reached a certain age demonstrates a major lack of understanding of statistics. Life expectancy of 65 does not mean those who are 64 can expect to die in a year. Really.
It has never been an insurance program protecting against an unlikely circumstance. And anyone with even the slightest knowledge of investing knows that risk and return are linked. If you want to absolutely ensure an income stream for the retired, you have to absolutely invest in the safest things - government bonds. This is a message that was pretty obvious less than a decade after 1929. It should be obvious to you less than a decade after 2008.
The tax itself is regressive, and many Democrats want to make it less regressive by raising the limit. The payout on the other hand is progressive. Your full retirement payout (PIA) in 2015 is 90% of the first $826 of your monthly earnings base falling to 15% of earnings above $4,980. (Source - Get What’s Yours by Kotlikoff et al., p. 36)
How is it regressive? It is a flat tax.
Only the first $118,500 earned is subject to the tax.
A couple making that much pays the same as a CEO earning millions.
I believe that’s the cap for the individual. If that’s right, the couple could be making twice that before they stop paying. But your point still stands either way.
As has been pointed out, the reason is that the CEO earning millions gets the same benefit after he retires – about $2600 per month – as the person making $118,500. At least, that was the way the system is intended to work.
The point is that as a result of Social Security, the CEO only loses control of a small fraction of the money he earns. He can use nearly all the money he earns in the way he chooses, whether that be investing in stocks or investing in bonds or buying 28 Ferraris or blowing it all in Vegas.
For middle-class folks, Social Security takes a much larger chunk of their income out of their hands. 12.4% May not sound like a huge amount. But consider how much a typical worker spends on other taxes, and on housing and utilities and insurance and other necessities. Social Security grabs a large portion of middle class disposable income and puts it under the government’s control.
Actually at high income levels some of the benefit gets taxed, so this isn’t quite true. But close enough.
Social Security is enforced savings. And remember, for non self-employed people, it also gets a contribution from the company. Do you think that all those who get Social Security would have saved the same amount, and that none who did save wouldn’t have made bad investment decisions. If you think so, take a look at 401Ks and how that has worked. Also, consider all the people who sold in 2009 out of panic.
How would you pay for the retirements of people who make mistakes in a voluntary system? And how would you distinguish those who spent their retirement money early from bad decisions or financial need from those who wasted it?
I wonder how much of a contribution forced savings has had on the culture of poor savings of the average American.
Essentially zero in the context of not having the household income to save in the first place.
I find these kind of “cultural” arguments to be typically poor arguments, especially when it comes to money matters, and especially when there is no data attached to support the argument.
Frankly, I’d like to see Social Security phased out. By that, I mean, keep the promises to people at or near the retirement age and provide a prorated benefit to people below it down to a point where they’re young enough to make an adjustment to their retirements to account for it, then start phasing out the taxes for it. Instead, I’d rather either see us find better ways to encourage people to invest for retirement or just make a properly funded program.
However, if we are going to keep it, at least in it’s current state, it’s regressive as hell, so it makes sense to make adjustments to it.
I think copyright needs a massive overhaul; this whole life + 70 or whatever it is now is ridiculous. That someone might get lucky with an idea becoming massively successful shouldn’t guarantee their grand children can still be exclusively milking the ideas long after they’re dead. In my mind, it defeats the whole purpose, which is to allow people who have creative ideas to profit from it, but still put it in public domain at some point so other people can add onto those ideas. That Disney, who is notorious for pushing for extending copyright laws, is also one of the biggest adapters of public domain ideas is just… mind boggling.
That said, I don’t think taxes make sense. It just means that a big company like Disney can, and will, pay the fees to maintain highly profitable ideas, and people who don’t have the money or means to market their ideas might get screwed. I’d rather see the timelines drastically reduced, something like 20 years or something. Because, really, if you can’t make something of a creative work in about that time, you probably never will.
Maybe there could be some kind of extra wording that extends it as long as it’s being actively developed, but if I try something and it doesn’t work, it doesn’t mean someone else might not see gold in that idea. But at some point, even actively developed intellectual properties must enter the public domain. I also think some greater allowances for fan work while still under copy right should be there.
Regardless, I don’t think it’s a good idea to tax it, because it’s just going to discourage the creative types that don’t have the funds. It’ll end up providing even more power to conglomerated studios and labels and publishers.
Again, I see this as helping large corporations and hurting more of the individuals. Of course the large companies will pay a small fee to maintain it, but an individual may not be willing or able. Is it based on what it might sell for or based on profits of products and services made using it?
I’d rather see us go after patent trolls. If a company deliberately violates one, they shouldn’t just reimburse the patent owner, but they should also pay for the costs of enforcement. The idea that a companies exist that do nothing other than get patents to sue people over is a ridiculous and obviously unintended part of patent law.
Trademarks are probably the most valuable thing a company owns. If it operates on a razor thin margin or even at a loss for some points, paying some percentage of what that trademark is theoretically worth could kill the business. Moreso, the value of the trademark is directly related to the reputation of a company, that’s why it’s important to protect it because if someone violates it, it suddenly becomes less valuable.
But more importantly, trademarks exist to protect the consumer. That is, a lot of companies work hard to earn the trust of the consumer and consumers make purchasing decisions, rightly or wrongly, based on that trust. For instance, consider Google, everyone knows that trademark, and knowing what their services are, I know what to expect. But if someone else comes along and creates Google.biz or Google.tv or whatever, not only does that company instantly get associated with a well known company and get unearned consumer trust, but they may even provide either a vastly inferior product or even deliberately manipulate that trust for nefarious purposes. After all, this is EXACTLY how phishing attacks work, just imagine that on a larger scale.
Of all the intellectual properties, frankly, protecting trademarks is one of the most important because the others might determine who does or doesn’t get rich off of an idea, but this one could actually affect everything from public health to general consumer confidence.
I do think if we’re going to have a progressive tax system, then the highest tax rate should be higher. But ultimately, one of the biggest problems isn’t taxable income, it’s capital gains. I’m unsure just how much effect this would really have. Hell, I think just making capital gains taxable just like any other income would raise tax income a lot.
But more, I’d rather not see brackets, but a continuous tax rate curve, and based on utility rather than raw income. After all, $50k might be well off in some areas of the country, but it’s well below median in others. Hell, where I live, the median household income is well into 6 figures, $50k could barely afford a 1 bedroom apartment here.
I like the copyright tax ideas, but the higher taxes on the rich won’t work. If you increase the top tax rate from 39.6 to 50 and include all the income for Social Security taxes. That is a tax hike of 50% on the most taxed people. Someone in California would be paying a total tax rate of around 78%. Such high rates are almost certainly on the wrong side of the Laffer curve and would result in both lower economic growth and lower overall tax collection.
I agree there should be no limit on high wages for Soc Sec withholding. But I disagree with the shelter and spreading it to all income.
Just taking the cap off will save Soc Sec.
To the naysayers- NO, you do not have to raise maximum benefits to go along with this.
Yes, higher brackets are a good thing.
Yep, and let’s keep it that way. there is no reason why taking the capo off the taxes would need to increase maximum benefits. Mind you, a modest increase in maximum benefits would likely be a good thing.
I’ll repeat the question. Given that the 401K program has not been all that successful for people who need it the most, how do you propose to provide safe and guaranteed retirement income? How do you propose to keep people from spending their retirement savings on short term emergencies? If you want to offer a wider range of investment options, how do you keep this influx of money from distorting the market?
Making the tax slightly less regressive isn’t hard to do, people like me who are always above the cap are not going to feel it that much, and it will support a proven and successful retirement program.
Do you have evidence that there is any effect? Remember, the Bush tax refund went mostly into savings (or repaying debt, same thing) and not consumption. Hurray for Americans, boo for stimulus.
It is easy to save when you have money left over every paycheck. When you are barely making it because productivity gains have gone to the 1%, not so much.
No. It was conceived of as an insurance plan, not a savings account.
The idea that it was a savings account only came later.
In any case, what it is is what’s important: it’s a tax, and a subsidy. A tax on working people and a subsidy for the elderly.