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Tue Jan 1, 2013, 01:17 PM

The payroll "tax" is not really a tax...

It's your mandatory contribution to the Social Security fund and determines your benefits when you retire.

It's called the payroll tax but it's real name is FICA or Federal Insurance Contribution Act.

It was lowered by 2% when the economy was on the skids to immediately get money into the hands of people who would actually spend it on stuff. This probably put an immediate floor on the downturn and was one of the reasons the Recession didn't turn into a Depression.

It was never meant to be permanent. If it was made permanent, it would have undermined the Social Security Trust Fund and cost more to future retirees more than any chained COLA.

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Arrow 44 replies Author Time Post
Reply The payroll "tax" is not really a tax... (Original post)
WCGreen Jan 2013 OP
kelliekat44 Jan 2013 #1
WCGreen Jan 2013 #3
dkf Jan 2013 #2
WCGreen Jan 2013 #4
dkf Jan 2013 #9
CTyankee Jan 2013 #24
dkf Jan 2013 #28
CTyankee Jan 2013 #29
dkf Jan 2013 #31
CTyankee Jan 2013 #39
Major Nikon Jan 2013 #33
AZ Progressive Jan 2013 #44
enlightenment Jan 2013 #5
WCGreen Jan 2013 #8
TheProgressive Jan 2013 #6
W_HAMILTON Jan 2013 #7
WCGreen Jan 2013 #10
W_HAMILTON Jan 2013 #13
WCGreen Jan 2013 #17
W_HAMILTON Jan 2013 #20
ecstatic Jan 2013 #40
stopbush Jan 2013 #34
AnotherMcIntosh Jan 2013 #11
WCGreen Jan 2013 #14
AnotherMcIntosh Jan 2013 #15
WCGreen Jan 2013 #18
Igel Jan 2013 #23
WCGreen Jan 2013 #25
Sgent Jan 2013 #37
WCGreen Jan 2013 #38
blcartwright Jan 2013 #41
WCGreen Jan 2013 #42
blcartwright Jan 2013 #43
kentuck Jan 2013 #12
RomneyLies Jan 2013 #16
WCGreen Jan 2013 #19
indepat Jan 2013 #21
Poll_Blind Jan 2013 #22
doc03 Jan 2013 #26
avebury Jan 2013 #27
bhikkhu Jan 2013 #30
SWTORFanatic Jan 2013 #32
WCGreen Jan 2013 #36
alarimer Jan 2013 #35

Response to WCGreen (Original post)

Tue Jan 1, 2013, 01:19 PM

1. The media and pols do a disservice by not explaining this. They want to make it sound like Obama

raised SS taxes.

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Response to kelliekat44 (Reply #1)

Tue Jan 1, 2013, 01:20 PM

3. They depend and then prey on the short term memories of the American Public...

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 01:20 PM

2. If you want SS to provide a decent standard of living you need to advocate to increase the tax.

 

Then you put more in now, you get more later.

But if you don't want to pay the tax and want to keep it low you can't really get too upset when the payback seems insufficient.

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Response to dkf (Reply #2)

Tue Jan 1, 2013, 01:21 PM

4. I am glad we are in agreement...

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Response to WCGreen (Reply #4)

Tue Jan 1, 2013, 01:29 PM

9. I used to advocate for saving on the side but it seems impossible to the majority.

 

If so the government has to create forced savings. It's sad it comes down to that but what can you do.

The system doesn't teach personal responsibility but lives by its consequences. It's a brutal way to learn and too late for most.

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Response to dkf (Reply #9)

Tue Jan 1, 2013, 03:32 PM

24. how do you "know" the inability to save more is because earners don't have

"personal responsibility'?

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Response to CTyankee (Reply #24)

Tue Jan 1, 2013, 07:41 PM

28. Because being personally responsible means you have saved 10-15% of your salary

 

From your first paycheck and have never touched it til you retire.

If the majority of Americans were on a program like this I would say they do a good job of being personally responsible.

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Response to dkf (Reply #28)

Tue Jan 1, 2013, 07:48 PM

29. but you don't know that each and every worker in the 1930s were doing this, do you?

You are assuming something you cannot possibly know is true. there are a number of variables that you would have to scientifically run to make a truly "educated" guess at this. And you have not done this. So how can you KNOW this?

Really, don't you think you should do a little more research into this issue before you just categorically say what you cannot back up with even SOME data and research (not just your own "ideas")?

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Response to CTyankee (Reply #29)

Tue Jan 1, 2013, 07:53 PM

31. Back then people didn't expect to retire.

 

http://www.ssa.gov/history/briefhistory3.html

A bit of history you may find interesting.

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Response to dkf (Reply #31)

Wed Jan 2, 2013, 01:04 AM

39. Thank you for doing research...there ya go...

this is how I learn what I don't know...

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Response to dkf (Reply #9)

Tue Jan 1, 2013, 07:59 PM

33. It's not a savings plan and was never intended to be one

It's a social insurance plan which insures you won't be eating out of a dumpster when you're in your old age.

Lots of countries have nationally administered pension plans and the idea isn't sad at all at least in comparison to what we have now.

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Response to dkf (Reply #2)

Fri Jan 4, 2013, 06:33 PM

44. Small Business Owners and Freelancers have been paying 13% to 15%, and we have to pay more?

Not all of us have an employer that will pay a matching 6.2%. (7.5% if you include medicare, total 15% now for SS / Medicare.)

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 01:22 PM

5. I like this idea in the "Atlantic"

replace it with a doubled "Make Work Pay" (remember that one?) tax credit.

The chart in this article does a great job of showing how the payroll tax has a higher negative impact on the immediate fortunes of lower income workers - and while the promise of SS is comforting, it doesn't mean much if you can't pay your rent or put food on the table. Yes - the payroll tax is important for SS, but it is poorly designed.

http://www.theatlantic.com/business/archive/2012/12/the-most-important-thing-missing-from-the-proposed-fiscal-cliff-deal/266737/

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Response to enlightenment (Reply #5)

Tue Jan 1, 2013, 01:28 PM

8. That's more than offset by the Earned Income Tax Credit...

If you earn $15k a year you would be paying $300 per year more in FICA. The Earned Income Tax Credit offsets that money but also, keeps wages lower because the EITC is a reason for those who hire minimum wage workers to keep the payroll low.

There is always a trade off in everything at the lower end.

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 01:24 PM

6. Well said...

Thanks for this important distinction.

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 01:24 PM

7. The Bush tax cuts were never meant to be permanent either.

Yet, if the Senate bill ends up passing the House and being signed into law by the president, almost all of the Bush tax cuts will be made permanent.

We could have kept the lower tax and offset the reduced revenue by increasing the FICA limit (or a similar sort of deal). Instead, almost every low and middle class tax payer will now see their taxes increase this year when compared to last due to the payroll tax cut being one of the few tax cuts not altered/extended.

It would be one thing if, as part of this deal, there was an agreement not to touch Social Security -- but there wasn't. So, we are going back to fully funding Social Security with no guarantee that Social Security benefits still won't be cut in the future, say, in two months when we have to address spending cuts and the debt ceiling.

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Response to W_HAMILTON (Reply #7)

Tue Jan 1, 2013, 01:31 PM

10. To me the FICA tax makes the idea of Social Security as a persons contribution...

That it is there for that person that they earned it fair and square.

It's been the same for decades.

Also, as I mentioned above, the Earned Income Tax Credit more than makes up for that 2% taken out of their paychecks.

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Response to WCGreen (Reply #10)

Tue Jan 1, 2013, 01:38 PM

13. And that matters little to the Republicans.

The payroll tax cut was not extended, Social Security is back to being fully funded, and the Republicans will still demand "entitlement reform" because Social Security is unsustainable. It doesn't matter whether it's true or not, they will demand it and given that it has not been taken off the table with this deal that passed the Senate, I would not bet against them getting some of their desired "entitlement reform."

And the EITC was already in place last year. It's not going to "make up" for the additional amount they will have to pay in payroll taxes because it is something they had already been getting. As far as I can tell, there is nothing new and meaningful to offset the additional payroll taxes that most every low and middle class worker will now have to pay.

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Response to W_HAMILTON (Reply #13)

Tue Jan 1, 2013, 01:51 PM

17. Believe me, I didn't mean to mislead you and I certainly know my tax

since I have been preparing tax returns for over 25 years now.

The Earned Income Tax was enacted right about the time they increased the FICA contribution back in the 80's and 90's.

Now the expiration of the temporary 2% cut in payroll that has expired is going to be mentioned by the president when the GOP wants to "fix" Social Security.

It was never meant to be permanent.

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Response to WCGreen (Reply #17)

Tue Jan 1, 2013, 02:02 PM

20. The president may mention it...

...and the Republicans won't give a damn. The Republicans have been wanting to privatize Social Security, voucherize Medicare, and/or cut both programs for years now, well before the "temporary" payroll tax cut went into place. The president can say that by allowing the payroll tax cut to expire that SS is just dandy and nothing needs to be done to it, but that won't stop the Republicans from doing their best to "reform" it just as they always have been doing.

Instead of simply "mentioning" the payroll tax cut expiring in future negotiations about Social Security, there should have been a concrete agreement that Social Security would not be touched for however long. Instead, the payroll tax goes back into effect, it affects almost every low and middle class worker, and the worst part is that THERE IS STILL NO GUARANTEE THAT SOCIAL SECURITY / MEDICARE WON'T BE CUT.

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Response to WCGreen (Reply #10)

Thu Jan 3, 2013, 06:27 PM

40. For those who qualify for the EITC

and many people don't.

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Response to W_HAMILTON (Reply #7)

Tue Jan 1, 2013, 08:17 PM

34. But they're not being made permanent. Nothing in politics is permanent.

The Clinton tax rates were "permanent" until Congress voted for the bush cuts, which lowered taxes for 10 years and were then to revert to the baseline established by the Clinton rates.

This legislation doesn't make the bush tax rates any more "permanent" than were the Clinton rates. It simply makes the bush rates the new baseline, a baseline that Congress can increase anytime and for any reason they so choose. The legislation removes the sunset aspect of the bush rates, which means they don't have an expiration date that needs to be constantly extended and reauthorized.

Nothing is written in stone when it comes to tax rates. If this bill gets enacted into law, Congress could come back latter and raise the tax rates on people making over $250,000 if they wanted.

The use of the word "permanent" in this discussion is overheated political rhetoric.

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 01:32 PM

11. Someone should notify Congress.

 

The heading for 26 USC 3101 provides the words:
"Rate of tax"

The text for 26 USC 3101 provides:

"(a) Old-age, survivors, and disability insurance
In addition to other taxes, there is hereby imposed on the income of every individual a tax equal to the following percentages of the wages (as defined in section 3121 (a)) received by him with respect to employment (as defined in section 3121 (b))

"In cases of wages received during: The rate shall be:
1984, 1985, 1986, or 1987 5.7 percent
1988 or 1989 6.06 percent
1990 or thereafter 6.2 percent.

"(b) Hospital insurance
In addition to the tax imposed by the preceding subsection, there is hereby imposed on the income of every individual a tax equal to the following percentages of the wages (as defined in section 3121 (a)) received by him with respect to employment (as defined in section 3121 (b))
(1) with respect to wages received during the calendar years 1974 through 1977, the rate shall be 0.90 percent;
(2) with respect to wages received during the calendar year 1978, the rate shall be 1.00 percent;
(3) with respect to wages received during the calendar years 1979 and 1980, the rate shall be 1.05 percent;
(4) with respect to wages received during the calendar years 1981 through 1984, the rate shall be 1.30 percent;
(5) with respect to wages received during the calendar year 1985, the rate shall be 1.35 percent; and
(6) with respect to wages received after December 31, 1985, the rate shall be 1.45 percent.

"(c) Relief from taxes in cases covered by certain international agreements
During any period in which there is in effect an agreement entered into pursuant to section 233 of the Social Security Act with any foreign country, wages received by or paid to an individual shall be exempt from the taxes imposed by this section to the extent that such wages are subject under such agreement exclusively to the laws applicable to the social security system of such foreign country. "

http://www.law.cornell.edu/uscode/text/26/3101

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Response to AnotherMcIntosh (Reply #11)

Tue Jan 1, 2013, 01:42 PM

14. It's considered a tax because it is a mandatory collection from the

income of the of those employed.

But it is debited to your account and the amount you put in determines the amount you get.

Widows are eligible for benefits. It also funds the Federal Disability program.

We can all quibble about how it is defined but the bottom line is that you are entitled to a federal retirement or disability payments based on how much you earned via your contribution to the fund.

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Response to WCGreen (Reply #14)

Tue Jan 1, 2013, 01:46 PM

15. You say, "We can all quibble ..." No. We can't. I'm not quibbling with you.

 

I'm not quibbling over the issue.

What I have done is quote the Code provision from the United States Statutes adopted by Congress.

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Response to AnotherMcIntosh (Reply #15)

Tue Jan 1, 2013, 02:00 PM

18. It's only looked at as a tax because it is tied to the amount you earn and is a mandatory

contribution to your personal FICA fund. Your contribution determines your benefit.

It is a mandatory retirement and disability insurance fund.

So call it a tax. I honestly don't care.

To me, I look at the intent and the implementation of the program to determine what it really is.

So call it a tax hike. Go after Obama and the dem's in the Senate if you will for caving or what ever it is that you want to do.

But I think it is best to let this 2% "tax" cut expire for the good of the Fund.

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Response to WCGreen (Reply #18)

Tue Jan 1, 2013, 02:58 PM

23. It's looked at as a tax because it's defined as a tax.

It's implemented as a tax.

It's collected as a tax.

Case law deals with it as a tax.

And the Constitutional justification for it is, well, that it's a tax.

If it's not a tax then it's blatantly unconstitutional and every president since (and including) FDR has violated his oath to uphold the Constitution.

Congerss, SCOTUS and the entire federal judiciary, as well as every president since FDR, not to mention scholars and other academics, consider it a tax.

You can call it your pet cockroach Archy and claim that it jumps up and down to type out messages to an alley cat named Mehitabel, but all that would show is a slightly greater dissocation from reality.

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Response to Igel (Reply #23)

Tue Jan 1, 2013, 06:45 PM

25. So you would be happy with keeping the 4.2 rate...

Even thought it is adding to the budget deficit. You see the amount of money contributed to the SS fund was still put in there through other funds. The program could not sustain that tax cut and would have undermined the viability of Social Security.

So you can call me whatever you wish and I really don't give a shit, but the whole purpose of this thread was to explain to people that reinstating this tax is the only option that should be taken in order to keep the Social Security program viable.

I thought it was a good idea at the onset because it would give each person working extra money in their pockets. It was enough to keep the economy from falling into a Depression.

So it was a justifiable TEMPORARY TAX CUT and that TEMPORARY TAX CUT should be revoked in order to preserve the viability of the most successful program in modern American History.

The whole reason I was calling it a tax in name only is to keep it separate in the minds of the people who think it is an increase in INCOME TAXES for the lower income levels.

HAPPY!!!!

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Response to WCGreen (Reply #14)

Tue Jan 1, 2013, 10:18 PM

37. Not true

The amount you put in has a relationship to what you get because congress decides it does. Congress could eliminate social security tomorrow, and no one would get any of their contributions back. Social Security is not considered a federal debt, and doesn't have the standing of a debt -- this has been litigated extensively by the Roosevelt administration.

As such its a wealth transfer tax -- perfectly legal, and I support it, but its not some sort of savings account.

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Response to Sgent (Reply #37)

Tue Jan 1, 2013, 10:45 PM

38. Your payout depends on your contribution to the fund...

They take into consideration on how much you have contributed to determine your payment. I get benefits now and they were totally based on how much I had made over the years.

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Response to WCGreen (Reply #38)

Fri Jan 4, 2013, 12:31 AM

41. no - it's determined by how much you earned

http://www.ssa.gov/oact/progdata/retirebenefit1.html

There is a close relationship between earnings and contributions, but they are not the same. That past earnings are indexed to inflation and that the "contribution" percentage may have changed over the years are things that make earnings and contributions different.

http://www.taxpolicycenter.org/taxfacts/content/pdf/ssrate_historical.pdf
The current combined employer & employee rate of 12.4% has been in effect since 1990. From 1974-79 it was 9.9%. That a worker retiring today paid in at lower rate prior to 1990 is not considered, it's the inflation adjusted earnings during those years.

There is no personal FICA fund. Money you pay in today goes out to someone else at the end of the month.

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Response to blcartwright (Reply #41)

Fri Jan 4, 2013, 12:25 PM

42. Which is directly related to how much you and your employer have kicked in.

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Response to WCGreen (Reply #42)

Fri Jan 4, 2013, 06:23 PM

43. there's a high correlation

but they are not the same thing. I gave the link to the SS website that gave an example of how they calculate benefits. No place did it say to count up the contributions. The benefit is based on your 35 highest years of inflation adjusted earnings. You might have been making an adjusted $100k a year in the 70's, paying 4.95%, while I made the same income in the 90's, paying 6.2%. We would get the same benefit, because we had the same earnings, even though I paid in more.

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 01:32 PM

12. The irony is that most people did not even notice they got the "tax cut" but....

..a dollar to a donut they will notice when it is cut.

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 01:49 PM

16. And folks must remember, that cut was covered by the General Fund.

 

The money from that 2% still went into the trust fund, but it came out of the general fund.

This directly tied Social Security to the deficit.

Allowing the cut to expire once again places the Social Security Trust Fund as a completely stand alone program that has absolutely nothing to do with deficit spending.

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Response to RomneyLies (Reply #16)

Tue Jan 1, 2013, 02:01 PM

19. Great Point that I forgot to mention...

Thank you for adding that to the thread.

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 02:23 PM

21. Payroll taxes, imo, are taxes subject to income taxes if, and when, politicians are willing

to renege on promised benefits as Republicans and many Democrats seem willing, even determined, to do.

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 02:28 PM

22. Everything you said is true and accurate and I'm surprised there aren't more recs.

My own House Rep., Peter DeFazio has gone on at length about this.

PB

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 06:50 PM

26. +1

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 06:50 PM

27. If people start paying more into FICA

then shouldn't they expect a bigger Social Security check down the road?

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 07:52 PM

30. It really did make a difference for me

as at the time we were struggling to keep up on the bills, and the budget was literally +or- $15 or so every month for awhile. That's keeping the heat way down low, not watering the lawn, eating plain oatmeal for breakfast and plain rice for dinner sometimes...anyway, the extra $80 a month or so was like sudden relief - very nice.

In our case, I kept up on all the bills well so we have finally qualified for a home refinance, which will be the last step in getting some real breathing space in the budget. With which to catch up on dental work and so forth...

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 07:57 PM

32. You realize FICA tax rate has been raised a few times before right? It hasn't

always been 6.2%.

It also does not apply to income above $110,100. It should. If it did it would not need to be 6.2%.

That said I don't have a particular problem saving for it even though I save a lot every year for retirement.

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Response to SWTORFanatic (Reply #32)

Tue Jan 1, 2013, 09:51 PM

36. Of course I know that....

I was doing taxes back in the 80's when the FICA rates rose.

I also know that the top cut off is indexed for inflation and continues to increase.

The reason it is capped is that people who have higher incomes when they retire have to recognize more than half of their SS payments as income. It's fair. Probably the only program in the government that is fair.

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Response to WCGreen (Original post)

Tue Jan 1, 2013, 09:22 PM

35. I can't take the $50 hit next month.

I simply cannot afford for that tax to go back up. You are right of course, it should never have happened. But now it's there, I see no way to raise it back again without the Republicans using it as ammunition.

"Look Obama raised taxes on the middle class." And the idiots will believe it.

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