Not much to add to Matthew’s comments on a better plan for Social Security. His core fix:
* Get everyone into the system (including those working in the cash economy);
Not bad, but possibly not enough. I’d add his “painful” prescriptions as well:
* Uncap the payroll tax, while lowering the rate somewhat. I’d actually take that a little further, and credit back payroll taxes for low-income workers, who get somewhat clobbered by them. But we ought to be able to – once we’ve got everyone earning wages into the pool – largely manage the solvency of the program by tuning the current tax rate.And I’d add further increases in the income taxes higher-income elderly pay on SSI income; I’d probably look at gross income, rather than AGI, to eliminate the tax-exempt bond effect.
Now many people will run around in circles, because this violates their notion of Social Security as a pension plan.
As I’ve noted, it’s not and never has been; it’s a social welfare program targeted at a specific set of ‘deserving’ recipients.
Ideally, we’d do things (like create a layer of national retirement savings) to keep people from needing any welfare, and everyone would means test out of the program.
I’m not going to be holding my breath on that one.
OK, so you are a bit of a Democrat, after all.
I’d just like you to consider, to help get your ideas past Republican screens, that you relook at the overall tax rates if you simply increase the tax rates on +90K to infinity by 9%.
There are better ways, which I will leave as an exercise to the reader.
The Age of Miracles is upon us! I have been ageeing with Matthew myself lately, with the exception of his extremely silly take on the Summerian Heresy.
The way to get the cash economy included is ????
Eliminate the IRS. Go to a consumption tax. No more payroll tax.
I kind of like the Bush plan. When private accounts provide 80% of retirement income the other 20% can be phased out. It probably wil take 40 or more years.
Evidently Bush takes the long view.
BTW Bush is talking about ending the IRS. A consumption tax eliminates taxes on productive investments. And when that happens you get more….
How all this fits together is a mystery which I’m sure Bush will unfold.
Generally I think his plan will pass. Lots of people taken to the cleaners misunderestimating Bush.
BTW if everyone owns shares of business do you believe that will change the thinking about economics, business, and the proper tax structure?
Hmmmm.
^&^%&%*^ thieves. I should probably drag JTK and Beck over here from no-treason just so I can watch them be ill.
BTW Bush is talking about ending the IRS.
Well, perhaps. Certainly those who push a consumption-tax-only regime are.
The liberals solution to the imminent collapse of a ponzi scheme? Expand regressive taxes. Sigh.
Uncapping the payroll tax is simply a tax hike. It would remove any kind of illusion that SS is a pension plan, I agree. Unless of course someone would like to suggest indexing benefits (strange word for getting back your own investment btw) to how much you put in with the cap removed. Not likely.
The simple act of stopping the shell game and admitting SS is a welfare program is a necessary first step. Means test the benefits, that will save billions.
Rob Lyman agrees with TJ; thousands more treated for shock.
Eliminate the IRS. Go to a consumption tax. No more payroll tax.
A consumption tax is going to be administered no differently than an income tax, since consumption = income – change in savings. That means the cash economy stays largely out.
Or else the IRS will be replaced by a massive, intrusive national-sales-tax bureacracy.
As always the cure for socialist folly is more socialist folly.
Isnt Europe, Germany et all, (Canada’s future woes illustrated) enough proof that the soft marxism is no better than the bloody form of it (whos leaders always smooch with their fellow leftist butchers, their idological kindred)
The unemployment rate in germany is getting rather close to our great depression.
We are already paying taxes at the WWII percentage of GDP !!! and the only reason we have been able to bear it is our productivity gains (while becoming more energy intensive), leftist folly prevented europe from gaining the same productivity advances, and their labor laws have created a ponzi economy in the edge of collapse.
Every indicator and example shows leftism is the wrong direction, universally, in every case.
so Bzzzt, sorry, SS is a welfare program, and the aim should be to have the utter least number of people on welfare, as the transityional period, an involuntary contribution to your own retirement fund ? ok, and its your money, out of the reach of socialists buying votes
bq. cannot undertake to lay my finger on that article of the Constitution which grant[s] a right to Congress of expending, on objects of benevolence, the money of their constituents. — James Madison, 1794
bq. The American Republic will endure, until politicians realize they can bribe the people with their own money. — Alexis de Tocqueville
bq. The politician attempts to remedy the evil by increasing the very thing that caused the evil in the first place, legal plunder. — Frederick Bastiat
Enough already, Enough !!!
Unless the democrats learn to hate Castro FARC-terrorist-supporting-Chavez Mugabe and KimJong and stop offering “solutions” from the communist manifesto, leftward is not the direction the country is going, because they are dispatching themselves to the political wilderness. They still think its packaging marketing and presentation, not the content thats the problem.
Enough already, Enough !!!
A non defense spending freaze and more tax cuts is what we want, lower taxes less regulation and smaller govt in all non-defense areas. thats what we want, its what we have been fighting for, its what we will continue to fight for.
The party that supports the liberty of others abroad doubly wants more liberty here at home, its what animates us, and we are not content with the leftist ratchet whereas we are only holding action inbetween further lurches to the left.
That dont cut it any more.
Richard Heddleson wrote:
That’s pretty much always been their “solution” to everything – tax people so highly that they cannot provide for themselves and get them dependent on a government program to buy their votes every couple of years.
Fortunately the POTUS made it clear that any proposal to raise payroll taxes is DOA which means we can talk about real solutions like personal retirement accounts, means testing, going from wage to price-indexing, and possibly phasing in a higher retirement age to account for changing life expectancies.
AL’s post is a pretty good illustration of why while some on the Left might be willing to fight against terrorism and jihadism, few of them can be counted to actually fight for liberty.
Seriously that is the stupidest idea yet. The reason Social Security has an unfunded liability is because on the aggregate it promises each worker more in benefits than it collects from him or her in “contributions.” Adding more people might increase the “contributions” in the short term but so long as the benefits formula remains the same, these same workers will be promised more in benefits when they retire than you will ever collect from them in FICA.
In other words, Matthew Yglesias’ “solution” is when you find yourself in a hole, start digging with a bigger shovel.
Rob Lyman wrote:
A fair point. So long as you have some form of taxation, you are going to have to have someone whose job it is to collect the revenue and enforce the tax code regardless of whether it is based on income, consumption, whatever.
However since most if not all States already have their own sales taxes in place and the federal government collects excise taxes on things such as a tobacco and gasoline from all 50 States, I don’t think it would be necessary to create a new “massive, intrusive national-sales-tax bureacracy” since we could just piggy-back off of the States to have them collect the federal NST when they collect their own and send it to Washington.
we could just piggy-back off of the States…
Oregon and Montana have no sales tax; forcing them to create a sales-tax bureaucracy might be constitutionally fobidden under anti-commendeering principles. Washington doesn’t tax groceries or pharmacuticals; other states do, sometimes at rates that are different from those imposed on other goods, and you can count on various industries jostling for lower tax rates. This is going to be a real mess to implement if you insist on mixing up state government.
Plus, a sales tax would have to be rather large to compensate for the loss of income tax; if you are taxed at about 15% on your income (a low average rate) and you save some part of it, you’d have to pay more than 15% on literally everything you buy. Rates that high drive the creation of black markets (think cigarette smuggling and the widespread failure to pay SS tax on nannies) and would be an undue burden on poor people. That means the poor people need some kind of rebate, which means they have to file tax returns documenting their income with some kind of Federal bureaucracy, and wait for a refund.
Plus all sorts of distortions which the tax code currently avoids (such as favoring the purchase of houses with cash, rather than by mortgate) and creates (such as favoring homeownership over renting) would be altered, with unpredictable economic consequences.
It’s not unworkable, but it’s not necessarily (or even probably) going to be dramatically simpler or cheaper than the current system.
Does anyone know the answer to this question:
All other things being equal, does a person that averages $80,000 a year in income (or whatever the approximate cut-off point for the payroll tax) currently receive four times the benefits as a person that averages $20,000 a year in income?
Rob you overlook the hidden tax of compound octuple ( and greater) taxation
In the cost of the good is all the upstream taxes, the consumer already pays the income tax of everyone up the chain.
The miners of the ore was income taxed and the mining company was income taxed, the drivers and company of transportation was tax on income, the smelter and the foundryman was income taxed, the machinists was income taxed and the car company and its workers was income taxed. all the fuel along the way was taxed both for transport and production, the energy companies and its workers was income taxed so energy cost is income tax inflated too. same goes for every relay spark plug nut and bolt, the tires and the paint.
By the time you are looking at the price on the car, income taxes involved in its creation, that are totaly born by the price on the car, care to guess what portion of the car is income taxes ?
At least 40 percent, and thats an average, the car has more levels of income taxation, so it hidden income tax is a lot higher, and you are paying for it with after income tax money.
Without that calculus, that tells you that the good, all else being equal, will be 40-60% cheaper by removing all the income tax included in the price, you are not using the correct formula.
Not to mention the 14 levels of taxation paperwork costs that will go away.
Right now, the poor is paying at a minumum a 40% income tax included in the cost of all goods.
leftism is dysfunctional on so many levels, and it is most harmfull to the working poor.
The car will be 40-60% cheaper without the hidden taxes.
Now apply that to everything else, the more involved the manufacture the more steps along the way, the more its cost is inflated by the income taxes it must support in its final price.
The consumer pays all taxes, its the formula no matter what, be it hidden in the back end or tallied all at the end like a sales tax, the big difference is that the consumer will finally be able to see the tax, it will no longer be hidden.
Raymond,
Your analysis makes no difference. So the miner doesn’t pay income taxes. Fine–good chance he isn’t paying it anyway if his income is low enough. But the smelter pays sales tax on the ore, and the foundry on the ingots, and the manufacturer on the sheets and bars, and everyone pays tax on spark plugs, fuel, etc. Same taxes, just as hidden, unless you intend to exempt producers from taxation, forcing even higher tax rates on consumers and adding layers of paperwork and complexity which you claim to be eliminating.
And since the poor don’t pay income taxes today, new sales taxes will be a burden on them unless their wages magically increase. Maybe they will, but it isn’t an obvious result.
Head on over to “SSA Calculator”:http://www.ssa.gov/planners/calculators.htm and see for yourself what Social Security will provide for you in your years in retirement. If you’ve the fortitude check out all the stipulations on which the SSA pays out for reasons other than retirement. If you really want to befuddle yourself check out how “Medicare Enrollment”:http://www.medicare.gov/MedicareEligibility/Home.asp?dest=NAV|Home|GeneralEnrollment#TabTop and premiums are tied to your Social Security and retirement.
Bottom line what the government gives the government can surely take away. Truth be known the bigger issue here is people have been swindled by their own government and then chose to let it continue. Ever since LBJ opened the vault people knew then the writing was on the wall. It is a matter of economics and resources pure and simple.
So what are the alternatives? Keep throwing good money after bad? As was stated before the problem here is we are dealing with uncertainty in futures. That being a future work force supporting the current work force when they are old and feeble. All looks good on paper until some unfortunate event occurs. Baby boom to 2.5 kids per family and the ever growing DINKS (double income no kids). People starting families in their 20’s to people starting families in their 40’s and 50’s. These all have major implications on when the future work force enters the market and when the future work force hits it’s premium net worth (very, very few start out at the top).
Are individual accounts the answer? Not sure if they are or aren’t at the moment. Individual accounts require individuals to pay into them. Hard thing to do when starting out in the work force and it takes every penny you make to get by. This requires that the savings would have to be mandatory and not selectable as proposed. Would it keep the government out of my pocket? Not sure about that either since it would be government mandated and run by government officials. Surely they’ll find away to tap into that which they mandated.
In short the current scheme for social security is bad practice period. I was told this by my parents when I was 16. (I’ve been paying into it since I was 16) Do I have the answer to fix it – nope. Would I be terribly upset if it were abolished all together nope. To be fair I’m no spring chicken either. When I was 20 I could look at my life and double it. When I was 30 I could look at my life and double it. Now that I’m 50 I’d say I’m on the down slope. Doubling the years is a possibility but the odds are slim.
If you’re really into a headache take a look at all the State taxes you pay as well that are adjuncts to social security and medicare. Now if that doesn’t cause pain between the ears and a pit in your stomach then by all means ask your neighbor for $50 more towards your security and retirement. Better yet ask him for $100 it’s for the benefit of all isn’t it.
Rob
Wrong, the price of all goods already include 40% taxes on average, and for a car its higher.
” And since the poor don’t pay income taxes today,”
Wrong, he is paying 40% income taxes in everything he buys. (or more, depending)
He even pays the income tax of his rich land lord, who, gets every dime he passes to the govt, from the poor struggling renter
Everywhere and every thing includes the hidden burden of upstream income, property, excise and all other taxes.
Tax the rich = the poor pays more for bread, the consumer pays all taxes.
Every burden you put on production is born by the consumer, thats where all money comes from.
Even McDonalds pays tax in the profit, tax the rich = higher cost for a hamberger
all costs at all levels are born by the end consumer. period.
And my point, Raymond, is that a shift to sales taxes changes NONE of what you are saying about “hidden taxes.” If McDonald’s doesn’t pay taxes on its profits, but it DOES pay large sales taxes on the purchase of ground beef, the pre-sales-tax price of a Big Mac won’t change one little bit.
If you want to argue that taxes should be a smaller share of GDP, that’s fine, I agree. But the precise form of taxation–payroll, income, consumption, sales–doesn’t make that big a difference, contrary to what many people seem to believe.
bq. If McDonald’s doesn’t pay taxes on its profits, but it DOES pay large sales taxes on the purchase of ground beef, the pre-sales-tax price of a Big Mac won’t change one little bit.
Yes it does. that would be a 13 fold decrease in levels of compound taxation.
And even so, why hid tax like that ? why charge intermidiate tax on bulk beef to the middleman ? now you have employed two tax collectors instaed of the one required, and the end cinsumer must pay it all anyway.
Taxing mid production is a dishonest way to hid the fact that the tax man is still shoving the spinter pole up the butt of the poor man by stealth.
NO, a single tax collection point is enough, and lets have it NOT be hidden, thets have every american have the cost of govt right in their face, and this invludes those that was ignorant of the 40% income tax he payed even when he himself wasnt directly taxed. its incidous and dishonest.
The end user consumer pays all taxes, always has, multilevel compound taxes even those that wrongly thought they payed none, was paying 40% they could not see.
And let all taxes be on non-food, food with the burden of income taxes removed, will be cheaper for the poor man.
Taxes will finnaly be seen in their full ugly cost.
Benifits, investments and job creation will be free, more jobs more up to date machinery, more productivity more wealth created.
Only the act of consuming will be taxed.. the act of creating wealth will not, a virtus cycle making life better for everyone, savings will be rewarded.
Few years of that, and years from now, Social Security ? what we need that for, the only people needing any will be the pathetic marxist slaves of Europe.
Fine, Raymond. We’ll only tax consumers, not producers.
I suppose producers will need some sort of paperwork and ID# to prove they shouldn’t be taxed. We’ll need an enforcement bureacracy to make sure that only “qualified” producers and middlemen get such numbers.
Do we tax them on the cost of goods they consume for production? That is, does a farmer have to pay tax for buying a truck he will use on the farm? What if he divides the use between farm and personal use–how do we allocate how much tax he pays on the truck, on oil filters, and on gas? What if he lives on the farm: then paint for his house and food for his table are both arguably part of the cost of production, and thus should be untaxed, right? Will we simply create a favored class of “producers” who pay no taxes on anything, or will we go with the complicated but more fair and more bureaucratic system?
What if some housewife starts selling cookies to her neighbors: what will she have to go through to buy her flour untaxed? What if I grow apples (I used to), and eat part of them but sell part of them–how do allocate the sales taxes on fertilizer, insecticide, and gardening implements? What if I eat part of my apples, sell part of my apples to neighbors (who will eat them) and part of them to a cider house (which will engage in further processing before selling to ultimate consumers)?
The law is complicated because life is complicated. You can’t make the complications disapper by waving the magic “sales tax” wand.
Rob, companies already have sales tax numbers on file, when i buy oil for my forklift, I give O Reilly my tax number, my suppliers all have it too, your spouting about a red herring.
And leftist always make the simple as needlessly complicated as possible, and its dishonest at best.
Food items btw, are already tax free in my state (Tx)
I might be missing something but wouldn’t the social security problem be pretty much solved by simply tying the age you can receive benefits to the average life span in way in which how some states have tied the minimum wage to the CPI. As in just make it a five year difference. So if the average life span is 74 years old then you can start receiving benefits at 69 years old. Isn’t that pretty much how the system worked when it got started? People retired around 60, got a gold watch, went on a few cruises, lived for 3-5 years, then died. The current level of taxation I believe would cover this scenario.
Other then how diffcult this would be to pass politically, wouldn’t this solution work?
Mike why should the govt have that control over you ?
Who made you a govt slave, them deciding ?
No, this is America, not Eurabia or China
Freedom is what its about, work your ass off, create wealth, what you and the govt dont consume, put aside, when your tired of the grind, and want to live out the rest of your days turing in an RV, as a free man that is your decision, not the govts.
The ponzi scheme is dishonest and an anti-american fraud, the very idea govt taxing you all your life and hoping you die too soon to get it back is just so wrong on so many levels, we was stoopid and fell for the hoax, but we know better now.
If the govt still wants to mandate a percentage of your wages be set aside, then so be it, to cover the irresposible, but not a single dollar should come withing the grasp of a politician or its gone to buy votes and statues bearing some old senators name, half of virginia by now must be named after Senator KKK sheets Byrd.
Let those that fall thru the cracks fall thru on welfare, that what SS is now anyway, and that is just wrong and fiscally fraudulent.
No, lets begin to fix this, most all funds should be private even if regulated, and be out of govt reach, govt should be there only all else fails for the few rare cases, everyone else should transition to a self paid pension, and that will work for 99.9% of all of us …
Its time for the dishonest anti-American ponzi scheme to be replaced with something real, with something that fits Americas Freedom principle.
Communism is dead, Socialism is failing, and are dishonest at all times they are not pure evil.
Mike
The money was set up as pyramid scheme to begin with. What was left over was to be untouched and used to support the system. Along the way big government decided they could use the funds for other things and continue with this pyramid scheme. There never was and never has been a personal account set aside for any one individual. The monies were subsequently released to the general fund during the LBJ administration. BTW – it’s not that they weren’t being used prior to that because they were. The government had to change the status of the funds to legally use it for other means. In the infinite wisdom of our government it was also decided that the pay outs should be more than just for retirement. Disability and death benefits were also added to the scheme. If you became disabled you could draw social security provided you met the minimum requirements of putting money into it. If you died your scions and spouse could draw social security on your behalf provided you and they met said requirements. I’ll not argue as to whether or not the intentions were noble. What I will argue is that the system is economically unsound and a stool with broken legs was sold to the public at large. Just ask any CPA where they would put their money when it comes to retirement and I’ll lay Vegas odds that none of them will recommend social security.
One thing we all agree on is social security as we know it today will eventually be abolished or we will need to come up with some other form of a self sustaining plan. The bigger issue is when a populace is mandated to give to a cause that they themselves will reap no benefit from. The question becomes who / whom / what is the charity for? To put it bluntly that is what you are doing. You are forced to pay into a charity fund of which you have no control over. If Americans were given the option of abolishing social security all together sure there would be some out cry. Especially from those near retirement age and those already retired. Those in their prime years might be willing to carry those not so fortunate but with an end point clearly defined. Where to lay the marker becomes another question. Lord knows what I could have done with every dime I’ve put into social security so far. Needless to say our government seems to think it is never all right for the populace to make it’s own decisions when it comes to their money. If they want to gamble it away that’s their business. If they want to save for retirement that’s their business. I wont argue the point that there are those that will be penny wise and pound foolish but once the die is cast and everyone realizes their fate is in their own hands I’d wager on most being thrifty.
I just brought up my point for tying retirement age to average life span as an easier alternative to completely abolishing the system, which would be nearly impossible to do politically. I agree with both of you in the fact that its a very flawed system and I would personally love to do away with it. The current system doesn’t help me or my Generation (Y, the Digital Generation, the Millenium Babies, whatever you want to call us)one bit. I was just trying to think of a way to “fix” the system to cause the least ammount of harm and one in which has some semblance of being able to be done politically.
I’m personally stuck at an impass on the issue because there is what I think should be done, to what I think can likely get done, and there are plans that could be made on every level in between.
Mike
I can appreciate your concern and wanting to do what you believe would be just, fair and right. I can say that you should take a hard long look at what ever proposals are put on the table.
I would also suggest that you start saving for retirement now even it’s just $5 a week. Surely you can do without the beer or whatever. Make sure it is in an account that belongs to you and not one mandated by the government.
You could start making babies now and raise them to be productive law abiding citizens but to be honest I don’t see that as a solution either. Not to mention it makes that $5 a week a little harder to swallow.
Part of the issue I have with a government run private account is I see those accounts being partially stripped by government intervention at some point to support those less fortunate or wise. IE You get less than maximum return on your investment while the difference goes to those less fortunate. How would this be possible? Say your return is 7.5%. The government takes 2% to support those less fortunate or wise. Soon that 2% becomes an adjusted scaling percentage rate. So how is this any different than the current scheme. You will still support those that are less fortunate or wise. Your gains will never be what you expect and government has forced you to pay up front for someone else’s folly. Would the government be any wiser about collecting and dispersing this money than they are now. I doubt it.
As I stated before I don’t know how to fix it other than placing a stake in the ground and abolishing it all together. Yes there are those that will suffer but for the greater good of all in what is fair and just I see no other solution.
USMC: money is a piramide scheme with a negative interest rate.
Raymond, my point isn’t that a national sales tax is impossible. It’s that a sales tax isn’t necessarily simpler than an income tax, and the associated bureaucracy isn’t necessarily any cheaper. That’s especially true given how high it would be, which means rent-seeking and bogus tax-sheltering behavior is inevitable (I amused myself last night figuring out how to structure my life so as to avoid paying any sales tax at all under your system; count on those who can afford lawyers to do so).
Oh, and the oil for your forklift would be taxable in WA since it isn’t for resale to your customers.
Great article from Dick Morris on why the POTUS’ proposal for personal retirement accounts is likely to pass (click on my name for the link). Money Quote:
The other interesting point raised by Mr. Morris was the tacit admission that Democrats fear any sort of proposal that leads to the middle class being self-reliant. When workers are able to provide for their own retirement through personal retirement accounts or their own health care without Medicare or even through their employers, it makes them less dependent on government and less likely to support costly entitlement programs that drag on the economy and individual liberty.
In contrast, Republicans have an incentive to make as many people self-sufficient as possible because someone who can provide for their own health care and retirement is less likely to support massive European-style social welfare programs.
Bottom line, if you support freedom, back personal retirement accounts.