Need your feedback on Social Security taxation & caps!!

[inna]

OK, so I posted this* tonight:

Please someone correct me if I'm wrong, but - to the best of my knowledge - anybody making any amount of money "AT OR ABOVE" the cap ($102K in 2008, or $106,800 in 2009-2010) contributes exactly the same dollar amount to the SSTF (Social Security Trust Fund). In other words, Bill Gates pays the same *ABSOLUTE $ AMOUNT* (NOT the *percentage* of income) as some upper middle class individual making $106,000.

If that is not ***regressive***, I don't know what is.

* It was posted on another forum ( http://uspolitics.tribe.net/thread/0f8e62fc-3b1e-483d-ac21-e1e5ff724bd3#e8e474eb-3a8f-40fa-970a-b464cb32379e , if anyone is interested), and...

...I've absolutely no background in economics or tax law, but... I've been reading 'the internets' rather extensively lately.

Anyway, please correct me and/or provide feedback if I was wrong, I'd really appreciate that!


P.S.: Love DU to DEATH, especially after getting my 3rd heart!! And especially... thank YOU the "secret admirer"!!
:loveya: :bounce: :loveya:

[DesertFlower]

1. yes. bill gates pays the same.

with medicare there is no cut off amount but with social security there is.

[ProgressiveProfessor]

6. Not really

IIRC he like Steve Jobs and others takes a token salary ($1/year) and their real compensation comes via other means (stock options etc).

[Hannah Bell]

16. Bill doesn't get WAGES. He get CAPITAL INCOME. He doesn't pay a dime of FICA,

& won't, no matter how high you lift the cap.

[JDPriestly]

23. That too could be changed.

[Hannah Bell]

34. It could. You let me know when you see that proposal floated by any politician.

[ChicagoSuz219]

2. They need to lose the FICA cap...

...it will generate a lot of money. I've been saying this for years.

Anyone listening??

[tonysam]

5. Better yet, abolish state "opt out" of paying into Social Security

for their state and local workers, including teachers. About 15 states do this, and people who work for government in midlife are screwed over on Social Security unless they have paid at least 30 years into the system, thanks to the so-called "windfall elimination provision."

It's theft of workers' Social Security.

[DaveinMD]

9. Dems should propose

eliminating the cap, but cutting the rate. Thereby giving a tax cut to the vast majority of taxpayers, while bringing in more revenue for the system.

[inna]

30. +1,000! However... you won't believe what kinds of objections are being floated

even here, on this progressive board, from supposedly progressives. :eyes: :crazy:

[Hannah Bell]

33. Yes, it's a *wonderful* idea to give the feds more money to borrow into the general budget.

Because SS tax rates aren't going to be reduced, even if the cap is lifted to 100%.

They want to raise the rates to keep borrowing the money, not to solve the (phony) problem.

[Enthusiast]

36. This is exactly the situation.

We did this in the 1980s. Where is the money? It was spent on tax cuts for the filthy rich. They will do it all over again then in a few years they will say <whiny voice> "Oh, there's no money for social security."

[DaveinMD]

39. if I ever

get to work for Senate or Presidential candidate, I am going to make this proposal a cornerstone of their campaign.

[ProgressiveProfessor]

14. Not necessarily true

Its based on W-2 wages not total income.

Widows/widowers get Social Security based on their deceased spouse's contributions assuming they have no income. We had a family friend who collected that for herself and her two sons. However, she was worth millions and they lived quite well on dividends and rental property income. I believe those same laws are in effect today.

[JDPriestly]

Social Security and perhaps Medicare taxes should apply to capital

gains income also.

[ProgressiveProfessor]

25. Its the difference between earned and unearned income

and right now SDI, SSI, etc are all earned income based, AKA W-2

[Enthusiast]

37. Whiny Republicans will say

"Oh, that will hurt the economy. You can't raise taxes during a recession, it will hurt the economy."

[WatchWhatISay]

3. The only exception would be for a self-employed person

they have to pay twice as much, percentage wise, since they have to pay both their portion and the portion an employer would have paid. I believe its 6.2% for an employee/employer and 12.4% for self employed people

[ChicagoSuz219]

8. OK... I'll make an exception for them. n/t

[ChicagoSuz219]

11. ...by half. n/t

[Hannah Bell]

35. why? if they get over $106K in wages, why should they be taxed at a lower rate than

the self-employed guy who only gets $50K in wages?

[WatchWhatISay]

38. Well, don't feel too sorry for them

They get to write off auto expenses and depreciation on their car and some other things that ordinary citizens can't do. I've been self-employed before and there are definite tax advantages that balance the fact that they get screwed on social security.

[Lydia Leftcoast]

10. For self-employed people, "self-employment tax" (combined SS and Medicare)

is 15.3% of 90% of your gross income up to whatever the cap is. I don't know what happens after you reach the cap, because I never have.

[Obamanaut]

15. Some say the employee pays for everything, just as the self employed

does.

If the employer hires someone, the employer contribution is considered to be part of the cost of hiring the employee, and that amount is not paid to the employeee but is held out for the SS contribution. Without an employer contribution, the employee paycheck could be larger by that 6.2% (or whatever it is.)

[dysfunctional press]

46. why should they get an exception?

if they can afford to pay themselves that much in wages, why can't they afford the tax like everyone else?

[ProgressiveProfessor]

4. Sort of...

Its based on W-2 wages and most of the heavy hitters get compensation outside of the W-2.

[slipslidingaway]

7. True, but there is also a cap on what is paid out to an individual. n/t

[PBS Poll-435]

12. I prefer Al Franken's "Doughnut Hole". Keep the existing cap with annual index,

And then tax those with Box 3 incomes above 250K at the same rate of 6.2% for every dollar made above that.

[Hannah Bell]

17. If you're going to lift the cap, the rationale for not including income between

$106K & $250K totally eludes me.

There's very little wage income above $250K. And most of it goes to people who can easily arrange to take their compensation in a non-wage form.

Lifting the cap is a stupid idea, & lifting it with a doughnut hole also.

[PBS Poll-435]

18. Based on my personal experience, you are wrong

Politely, most 300K-600K "wage" earners that I have encountered receive non-deferred EOY cash bonuses. Boxes 1, 3, & 5.

[Hannah Bell]

19. SS already taxes 90% of total wage income in the US. This leaves just 10% over

the cap, most of it in the range $106K-$250K.

The number of $300K-$600K wage earners you've personally met is not large in comparison. I don't presume to speak about their individual circumstances.

[PBS Poll-435]

20. Some links to the data that you have cited would be useful.

Not saying that you are wrong at all, but when Al Franken cited specifics in his plan in 2005, he said we could sustain SS into the 2070s.

[Hannah Bell]

21. bottom of page 313. in footnote.

http://books.google.com/books?id=I8D8tWG851kC&pg=PA313&lpg=PA313&dq=%22social+security%22+%2290+percent+of+wages%22&source=bl&ots=ybbos39XfE&sig=4oDbAWfXtPJN1JV-ENzRu82R-wg&hl=en&ei=oWJyS5bzLozesgOW6NCOBQ&sa=X&oi=book_result&ct=result&resnum=3&ved=0CA0Q6AEwAjgU#v=onepage&q=%22social%20security%22%20%2290%20percent%20of%20wages%22&f=false


SS cap is raised almost every year to keep collections in this range.

http://www.socialsecurity.gov/OACT/COLA/cbb.html

[PBS Poll-435]

22. Try harder

Please.

[Hannah Bell]

24. excuse me? "By 1983, 90% of wages were subject to the tax. Since then the fraction

has fluctuated between 85 and 90%".

"In 1993, 6% of workers had earnings that exceeded the ceiling."

I don't know exactly what al franken said, but anyone who's pretending like SS's finances in 2070 need to be assured by taxing labor *now* is a fool or a shill, period.

That's how we got $2.5 trillion worth of debt securities (20% of our national debt) in a trust fund that the ownership class is now pretending they don't have to repay.

[PBS Poll-435]

29. Labor? Shill?

Please find a more recent source regarding the proportion of W2 > 250K vs the W2 earners as a whole.

[Hannah Bell]

31. Why? If SS taxes about 90% of covered wages, the proportion is ipso facto

you want to find out the *exact* percent, do your own research.

Any kind of income over $250K = top 1%.

The fact which everyone crying "raise the cap" so conveniently ignore is that paying off the SS Trust Fund monies that were borrowed into the general budget funds SS fully until 2037 under current assumptions.

Raising the cap above current practice just keeps sending more surplus SS money into the Trust Fund, which means the government (by law) MUST borrow it into the general budget, bloating the TF even further, increasing the debt owed, & creating an even *bigger* political problem in the future.

PAYING OFF THE TRUST FUND IS JOB 1.

[Hannah Bell]

13. Bill Gates doesn't pay one dime. He doesn't get a salary anymore. He makes his money from CAPITAL

CAPITAL INCOME ISN'T SUBJECT TO SOCIAL SECURITY TAXES.

Other people who pay no FICA:

Every person on this list of America's top 10 richest people:

http://www.infoplease.com/toptens/richestpeople.html

They don't get to be the richest people in the world from WAGE INCOME.


Since 1983, SSA has collected more in Social Security taxes than needed to cover the needs of current retirees. That's why the SS Trust Fund contains $2.5 trillion in government promissory notes on the money it borrowed from WAGE EARNERS.

$1 trillion of that was accrued during the reign of Bush II, who gave approximately $1 trillion in INCOME TAX CUTS TO THE TOP 5% in the same time period.


WHY DO YOU WANT TO COLLECT MORE SS TAX SO THEY CAN STEAL, OOPS "BORROW" MORE?

PAYING OFF THE SS TRUST FUND IS JOB #1.

RESCIND THE BUSH INCOME TAX CUTS ON THE TOP 5%.

[JDPriestly]

26. Subject capital gains income to Social Security and Medicare taxes.

You could permit deductions from the capital gains income for actual amounts in vested.

Too much income that is in fact earned is taken as capital gains. That is one of the reasons that our tax system is perceived as being so unjust.

[Hannah Bell]

27. SS was set up as a self-funded program so it couldn't be hit with the "welfare" label.

That's its strength.

The number one priority right now is making sure the Bush tax cuts are rescinded and the SS Trust Fund is redeemed - from INCOME TAXES ON THE TOP 5%.

Income taxes TAX CAPITAL.

[amborin]

28. explanation here; also a scary older Krugman article:

partial explanation:

http://www.boston.com/news/nation/articles/2008/06/14/candidates_offer_social_security_plans/

http://www.nytimes.com/2007/11/16/opinion/16krugman.html?scp=1&sq=krugman%20obama%20social%20security%20badge%20seriousness&st=cse



http://www.nytimes.com/2005/01/04/opinion/04krugman.html

[Hannah Bell]

32. I believe that's a graph of what % of retirement income each component is.

1/3 of retirees rely on SS for *all* their retirement income. another 1/3, for more than half.

[amborin]

43. it is; it goes w/ one of K's posts re: soc sec

[Statistical]

40. Don't raise cap on SS, raise income tax by an equivelent amount.

In other words raise income tax on brackets higher than $106,000 ($212,000 married) instead.

Why?
The trust fund has a surplus and by original legislation the surplus funds must be spent by Congress.
Thus the surplus is replaced by IOU and those IOU will need to be repaid eventually.
Raising the cap would simply increase the surplus even more and such increase number of IOU that will need to be repaid later.

How will they be repaid?
By general federal revenue (income tax mostly).

Right now everyone gets payout on SS based on payment in. Raising cap but limiting payout will upset that balance.
You can raise the same amount of revenue by raising income tax on the higher income brackets.
This will keep SS "universal" everyone pays in and everyone collects.
It will also raise the federal revenue necessary to payback those IOU which will be needed when SS starts drawing more than it takes in.

[Hannah Bell]

41. thank you.

[Statistical]

42. No thank you.

Your post on this a couple week ago turned on a light bulb in my head.

At first I brushed it off but the more I read the more sense it makes.
If you still have a link to it you might want to include it in this thread.

Raising the cap is more dangerous to long term security of SS than raising income taxes by an equivalent amount and it generates no more income.

Now raising/removing cap on Medicare that is another story. Medicare is in far worse shape than SS if I remember correctly.

[slipslidingaway]

45. Thanks for your posts on this issue...

might be worth setting up a journal, takes about 1 minute, and then adding your old posts to your journal.

It would make it easier for people to find your older posts on this subject.

:)

[inna]

47. Hannah Bell, thank you! And... What # 42 and 45 said.

I appreciate your posts and insights immensely, I just wanted to let you know that.

In fact, this OP was triggered by your comments in another thread - which I can't even find right now.

I hope we can all learn more from you, and, like another poster said up thread, it'd be great if you kept a journal.

:yourock:

[Hannah Bell]

48. ?? I thought you favored lifting the cap to over $250K?

[inna]

49. Currently, I 'favor' ELIMINATING the cap ALTOGETHER, but that had nothing to do

with my previous comment.

[Hannah Bell]

50. not trying to be difficult or start a fight, but it's my recollection that you

said i was some kind of covert repub (something like that) since i didn't favor taxing the "rich" by lifting the cap.

so i'm just confused why you're now thanking me for my posts.

just trying to understand where you're coming from, no personal ill-will behind the question. why are you thanking me?

[inna]

51. :bangs head on laptop repeatedly:

I thanked you because you happen to be one of my favorite and most respected posters on this board!!

I've NEVER, EVER, EVER implied in any way, shape, or form, that you were a "covert repub"!!! WTF are you talking about??


Never mind. It's all good. I'm done with the internets for the night.

[Hannah Bell]

52. hmm. well, it's my recollection you implied something like that, & that's what you were referring

to here:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=7682721&mesg_id=7682956

Since I'm the poster most frequently & vehemently arguing against uncapping FICA, & we'd had the earlier discussion, which ended with me giving a bulleted list of reasons why it was a bad idea, & you -- I believe -- not responding.

I actually looked up the old thread before responding to the comment above, but decided not to repost my earlier response. i wish i had, because i can no longer find it. i believe it was in the "next bailout: social security?" thread -- which i can't bring up on google.

oh, well. i don't take these discussions personally, but i like to be accurate. since i can't find the post now, i'll just assume i misinterpreted you & the problem is my memory.

[slipslidingaway]

44. kick nt