Social Security: Time to Uncap FICA 16 comments
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For nearly thirty years--ever since the Republican congressional barons of 1982 begged Reagan to allow them to increase taxes and then figured out that a tax increase that would "save Social Security" was one that he would accept--the rest of the federal budget has ridden on the back of Social Security and its operating surplus. Those days were coming to an end, and it looks like the magnitude of the current crisis means that that end comes... now.
The Congressional Budget Office reports that the era of Social Security Trust Fund services is over:
The smart thing to do would be for congress this fall to (a) uncap FICA--apply it to all of wage-and-salary income rather than just the bottom 90%--starting in 2012 and raise the retirement age to 70 in 2030, thus hitting those born in 1960 and later (i.e., me). And then revisit the system in a decade and see what shape it is in.
Adding-on some tax-preferred properly-incentivized individual accounts as an add-on, not a carve-out would be a good idea as well.
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Uncapping the contribution system without uncapping the benefit schedule converts the program from an investment-like retirement program for all citizens into a social benefit paid by the rich to support the poor. Imagine an IRA or a 401k that provided no additional retirement income if one put more than a certain amount in it?
Uncapping makes fiscal and political sense in the short-term, but it will undermine long-term support for the program if it just becomes another wealth-transfer scheme.
Who cares if Joe middle class put more money into the system over the course of his workable life than somebody with a low or non-existent income.
King Hussein doesn't think it's fair to reap what you sow. He has a better idea of how to distribute goods than natures way and King Hussein's idea is based on NEED.
You are witnessing the greatest theft in human history.
You might be surprised to discover that the guy making 60K does not get double what a guy making 30K gets. I know I was surprised. A guy making 12K will receive 63% of his salary, a guy making 75K only 39%. That's a major reason I don't have a problem raising the cap. We already have a "progressive tax" in FICA, I don't see the removal of the cap as much of a change. In fact, I support it. Why should the people making just under the cap at 100K pay for those making 30K, but those making over 100K no longer pay in relation to their income. (I hope my point got through. I'm not sure I worded that last part very well.)
The imperative for the debt-bloated West is to cut spending systematically for year after year, off-setting the deflationary effect with monetary stimulus. This is the only mix that can save us.
My awful fear is that we will do exactly the opposite, incubating yet another crisis this autumn, to which we will respond with yet further spending. This is the road to ruin.
How about this. Reduce benefits before increasing taxes. People didn't pay enough for their benefits so reduce them. None of this would have been a problem if the system would have been defined as a "defined contribution" system instead of using a "defined benefit".
And there is no reason to tax people who don't get the benefits to pay for people who did not earn their benefits. We have plenty of that already.
Or how about this - make it voluntary. If you want higher taxes to pay for benefits other people didn't earn, please give the treasury your money. I however would prefer to keep that which I earn.
Regards
The problem with that train of thought is that we would not be able to have a military or judicial system or an interstate highway system. Because everyone would "prefer to keep that which they earn."
Correct me if I have miscounted. Stimulus 1 came to us under Bush in 2008, Stimulus 2 came under Obama, and the next Stimulus will be number 3. Assuming that we bail out the states in Stimulus 3, and also assuming that the CRE crisis can be ignored and denied well into 2010, we'll need Stimulus 4 to correct that crisis. By that time, who among the financial sector will not have had ample opportunity to thoroughly line their pockets?
On Aug 18 02:41 PM conceptwizard wrote:
> The Fed's doctrine – New Keynesian Synthesis – has let it down time
> and again in this long saga, and there is scant evidence that Fed
> officials recognise the fact. As for the European Central Bank, it
> has let private loan growth contract this summer.
>
> The imperative for the debt-bloated West is to cut spending systematically
> for year after year, off-setting the deflationary effect with monetary
> stimulus. This is the only mix that can save us.
>
> My awful fear is that we will do exactly the opposite, incubating
> yet another crisis this autumn, to which we will respond with yet
> further spending. This is the road to ruin.
It's also being used for disability benefits, not just for retirements. So, unless you are on the left to far left, you should have a problem with this. Personally, I would rather have socialism for the poor than the wealthy elites of Wall Street or industry...
On Aug 18 04:41 PM WalterJR wrote:
> levin70:
>
> The problem with that train of thought is that we would not be able
> to have a military or judicial system or an interstate highway system.
> Because everyone would "prefer to keep that which they earn."
On Aug 18 01:50 PM traden4alpha wrote:
> Yes, uncapping seems inevitable and yet it's totally against the
> original spirit of the Social Security program in which all Americans
> would contribute to a retirement system and then draw retirement
> benefits in proportion to their contribution....
> another wealth-transfer scheme.
Do you really think that is a convincing argument?
Welcome to the real world. We as a society decide what we will do. Some people like Social Security, some don't. Some like foreign invasions, some don't. As a society, we pay for everything we as a society deem is a good idea. You are naive to think your argument is convincing to anyone whose life is not centered around your "basic economics textbook." A street corner preacher surrounded by atheists who don't see his "textbook" as an argument ender.
Yes, a democratic society decides what it will do, be that to vote in a communist system or vote to abolish all forms of government. Society can vote to expand or abolish SS. My point was not with what voters want, but was to take issue with your claim that there is no difference between making SS voluntary and making taxes for national defense voluntary. There is a big difference. Simply, people are capable on their own of saving for retirement. National defense, clean air, and other public goods, however, would likely not be provided in sufficient amount or quality w/o gov't involvement. Check out Wikipedia's discussion of public goods. For those of us who are free market oriented, the concept of a public good gives a frame of reference to decide where to draw the line on the role of the government.
On Aug 19 10:13 AM WalterJR wrote:
> gu econ:
>
> Do you really think that is a convincing argument?
>
> Welcome to the real world. We as a society decide what we will do.
> Some people like Social Security, some don't. Some like foreign invasions,
> some don't. As a society, we pay for everything we as a society deem
> is a good idea. You are naive to think your argument is convincing
> to anyone whose life is not centered around your "basic economics
> textbook." A street corner preacher surrounded by atheists who don't
> see his "textbook" as an argument ender.
I used to be a pretty hardcore libertarian so I understand where you are coming from. It's just that there are many competing worldviews which are just as valid (and frequently far more realistic). Also, my original comment could be modified to state, say, that a person only wanted to pay for the percentage of military action he found effective -- and still make the same point.
I used to believe it was useful to debate various social security and medicare fixes. Now, I think this is only an academic exercise. The Democrats have blocked real debate for years. It is interesting that the AARP has also done nothing, but to encourage "doing nothing", although they pretend to represent seniors.
The liberal Democrats have an easier idea, which I believe we will see assuming Obama gets a second term: enough money to solve all these financial problems, pay down the deficit, and give them a lot of money to spend more into the forseeable future. All of course at the expense of the American standard of living (since there really is no free lunch).
It is called the VAT (value added tax). They can start with small rates that multiply many times to just manufactured goods. Later they can expand to food, drugs, and services and increase the tax rates. Citizens may start out paying 5-10% more on limited purchases; and down the road be paying 50% on everything. Since the tax is hidden in product cost, consumer outrage can be directed against business (price gouging) and away from politicians (the true villains). The best new business opportunity will be repairing old stuff since new stuff will be extremely expensive.
Have you wondered why Obama and Democrats are not really concerned about all the spending? I believe that Obama and the Democrats in Congress will give us the VAT in Obama's second term.