The "Co-Chair's Proposal": Who Wins? Who Loses? A look at the numbers:

Faryn Balyncd

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Fri Nov-12-10 01:06 AM
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The "Co-Chair's Proposal": Who Wins? Who Loses? A look at the numbers:

The "Co-Chair's Proposal" (Caution:slow loading pdf) asserts that their proposals will "increase progressivity" (page 45) and "distribute (the) burden fairly" (page 9).

Let's examine "progressivity" of their entire approach.

Specifically, let's examine the "Co-Chair's Proposal's" effects on the marginal federal tax burden* and changes in benefits for low income, middle class, and wealthy Americans:

Currently, while some lower income Americans have a income tax rate of zero (assuming zero "taxable income"), all bear a 15.3% FICA tax burden from the first dollar, for a total federal marginal tax rate of 15.3%. For lower income Americans, the following aspects of the "Co-Chair's Proposal" are relevant:
- - - Continuation of their marginal federal tax burden of 15.3% from the first dollar,
- - - Creation of a "special minimum benefit to keep full-career minimum wage workers above the poverty level",
- - - Gradual increase the full retirement age to 69 with "a hardship exemption for those unable to work beyond 62",
- - - Reduction of future COLA's by recalculating inflation using "chained CPI"
- - - Raising the gasoline tax by .15/gallon,
- - - Elimination of the earned income credit and child care credit.

For many middle income Americans, it is problematic to calculate the net effects of tax cuts and eliminating exemptions such as the child care credit, the earned income credit, the home mortgage deduction, and the 15% rise in gasoline taxes (weighed against possible higher standard deduction, etc). Whether there is a net benefit or net loss under the various options will vary among families.

A middle class entrepreneur or professional earning under the FICA cap currently has a marginal income tax rate of 25% and a FICA tax of 15.3% on all income, resulting in a marginal federal tax rate of 40.3%. The "Co-Chair's Proposal" states that it would "raise the taxable maximum (subject to FICA taxes) from 86% to 90% of wages by 2050". The proposal is deliberately vague as to what level of income would be subject to FICA taxes, but a rough estimate would be an increase from the present $106,800 to perhaps$150,000 in 2010 dollars. In any event, the "Co-Chair's Proposal" stipulates that the top 10% of income (all of which goes to individuals in the highest 2%, will continue to be EXEMPT from FICA taxes. Under all options of the "Co-Chair's Proposal", this middle class entrepreneur or professional just under the FICA tax cap would continue to have a similar federal marginal tax rate (of at least 38.3%).

BILLIONAIRES, however, like all others with income over the FICA cap, under current law have a marginal income tax rate of 35%, and a FICA marginal tax rate of 2.9% (Medicare only, as all income over $106,000 is exempt from other FICA taxes), for a total federal marginal tax rate of 35.9%. (scheduled to rise in 2011 to 39.6% + 2.9% = 42.5%). Option 1 of the "Co-Chair's Proposal) would reduce the marginal federal tax rate for billionaires to 23% income tax + 2.9% Medicare tax = 25.9% total federal marginal tax rate by continuing to EXEMPT almost all billionaires' income from SS taxes. Option 2 differs only in that it continues both the Bush tax cut (to 35% income tax) as well as the EXEMPTION from SS taxes for billionaires, FOREVER (for a total federal marginal tax rate of 35% + 2.9% = 37.9% federal marginal tax rate.

By choosing to finance the (very modest) benefits to the poorest Americans, NOT from General Revenues (income taxes) from which the very wealthy 2% are not exempt, by instead from the REGRESSIVE PAYROLL TAX, while simultaneously slashing Social Security benefits of the middle class, the Co-Chairs have chosen to turn FDR's Social Security from an retirement insurance program into a welfare program PAID FOR ENTIRELY BY WORKING CLASS & MIDDLE CLASS AMERICANS.

IMPROVING THE STATUS OF THE MOST VULNERABLE AMERICANS IS A MORAL NECESSITY.

The equitable method to accomplish this through General Revenues (income taxes) which also are paid by the very wealthy. Helping the most vulnerable should not be done by stealing the Social Security benefits and payroll taxes of the middle class, while EXEMPTING the 10% of personal income (belonging to the most wealthy) from FICA payroll taxes.

Americans have, with their payroll taxes, created a $2.5 trillion surplus, invested in Treasury bonds, which is sufficient to pay for all benefits in full until 2037, even with the current exemption of 14% of national income from FICA taxes. (And, interestingly, the Social Security trustees have stated that only a 13% increase in revenue would be the amount needed for perpetual solvency.) As middle class FICA taxes have already created a system with greater proportional benefits to lower income Americans, it is clear that middle class payroll taxes have more than funded currently promised middle class benefits.

The problem is that FICA-exempt plutocrats are not satisfied to have avoided taxes by borrowing SS Trust fund surpluses to finance wars and corporate welfare: Now they are demanding that fully funded middle class SS benefits be slashed so that the necessary increases in benefits to the poor be financed solely on the backs of working and middle class Americans, while the plutocrats continue to pay a marginal federal tax rate lower than that of an entrepreneur earning $106,800.

Middle class Americans, including entrepreneurs and professionals, who have in good faith earned their benefits with a lifetime of contributions, both deserve and need those benefits for a secure retirement.

To steal middle class Social Security so that the wealthy do not have to share the cost of helping our most vulnerable is a morally compromised policy.

America has been built upon, and needs, a strong middle class.

America is ENDANGERED by a pampered and TAX-EXEMPTED plutocracy which in recent decades has come, as a result of misguided policy, to control a historically unprecedented percentage of national wealth and income.

Slashing middle class Social Security benefits for the benefit of FICA-exempt plutocrats will be a mortal would to our endangered middle class.

And a wounded middle class is a poor omen for the survival of our open society, and will destroy the political coalition that elected our party in 2006 and 2008.

_________________________________________________

* (The marginal federal tax burden on income at each level is the sum of federal income, FICA, and Medicare taxes levied on the highest dollar earned in wages, self-employment, or other income. The FICA tax consists of 10.6% to the Social Security Old Age & Survivor's insurance, 1.8% Social Security Disability insurance, 2.9% Medicare, for a total 15.3% FICA tax. For the self-employed the FICA tax is collected as a 15.3% self-employment tax. For Americans employed by others, the FICA tax is collected as 7.45% "from the employee" and 7.45% "from the employer". The tax burden in both cases is 15.3% and the point(s) at which this 15.3% tax is deducted and collected is immaterial, as the same 15.3% is paid on compensation, is unavailable for take home pay, is non-negotiable, and has identical effects with respect to demand/supply curves and wage negotiations.)

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