Taxed Enough Already

@georgeob1,

The problem with Social Security would not be so severe had Congress not been regularly looting the Social Security Trust Fund for decades. With military pensions, the problem is, and always has been, that there was no funded trust fund for them--they've always been paid out of general revenues. I really don't know what could have been done differently--apart from Congress keeping it's greasy mitts off the SS Trust Fund.

1 Reply

@Setanta,

Setanta wrote:

The problem with Social Security would not be so severe had Congress not been regularly looting the Social Security Trust Fund for decades. With military pensions, the problem is, and always has been, that there was no funded trust fund for them--they've always been paid out of general revenues. I really don't know what could have been done differently--apart from Congress keeping it's greasy mitts off the SS Trust Fund.

From its inception under FDR, Social Security involved only the illusion of a Trust. The initial enabling law specified that SS taxes, both employer and employee paid, would go into a distinct "trust", but the Treasury was left with free access to borrow directly from it with special IOUs. More to the point, the system was deliberately designed as Ponzi scheme with benefits - right from the start - funded out of current taxes or contributions to the trust. There was never any dedicated funding or reserve with a present value equal to the present value of projected benefit payments, as are required by the same Feds for state and corporate pension plans. That's "progressive" politics for you.

What could have been done differently was to have delayed any benefit eligibility for 8 years or so to create a pre-funded reserve with the potential to earn enough interest to make the system stable - just as the Federal government requires of other public and private pension funds. However, politicians, particularly progressive ones don't appear to like delayed gratification. When they're buying votes, they want that aspect of the transaction completed right away.

I don't think that allowing the Treasury to borrow from the fund is harmful in itself. as long as it pays back the borrowings with bond rate interest. That aspect of the problem is simply one of cash management.

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@georgeob1,

The problems to which you refer resulted from the Repuclicans wringing their hands and gnashing their teeth over the prospect of a genuine trust fund taking over the stock market. I fault FDR, both for caving in in order to get the legislation fast-tracked, and for not, as you say, allowing a trust to accumulate before benefits were paid.

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@georgeob1,

Quote:

I don't think that allowing the Treasury to borrow from the fund is harmful in itself. as long as it pays back the borrowings with bond rate interest. That aspect of the problem is simply one of cash management.

The problem that is happening is rather than paying back the trust fund politicians have decided to wring their hands and tell us the trust fund is broke when in fact they simply don't want to raise the revenue required to fulfill the obligation.

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http://able2know.org/topic/205697-1

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I have not received to date one calm and reasoned answer to the question "Why not eliminate the cap on FICA and medicare contributions?" I'd love to hear an answer tha wasn't way off to the right or left but just objective.

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@blueveinedthrobber,

The cap on Medicare was eliminated years ago and it's being raised this year on anyone making over $200,000. There's an additional 0.9% medicare tax imposed on all wages over that amount. The cap on FICA is $113,700 this year. That can be raised but it does nothing for the problems with medicare.

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@JPB,

you mean that Mitt Romney and Wayne La Pierre pay the same % of gross income into medicare as I do? Not to doubt you but I find that hard to swallow

1 Reply

@JPB,

but what if they eliminated the cap all together? Wouldn't that pour money into SS?

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@blueveinedthrobber,

blueveinedthrobber wrote:

I have not received to date one calm and reasoned answer to the question "Why not eliminate the cap on FICA and medicare contributions?" I'd love to hear an answer tha wasn't way off to the right or left but just objective.

In the case of Social security the benefits derived from one's contributions don't rise after a point associated with the cap (actually less). One get's what he/she pays for appears to be the originak rule. I suspect a similar line of reasoning applies to medicare. These are both consistent with accounting practices for annuities and medical insurance.

You have every right to insist that those with more money should contribute more - indeed that is already the case to some degree with respect to both. Others may not agree with you, as is their right as well. I'm over 70 and I still work. I have never received Medicare benefits that exceeded the annual tax payments I still make to it - and that's without the additions made to the tax by the cap increase and added Obamacare taxes also impoosed..

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@JPB,

All earned income pays Medicare tax of 2.9%, half by employer and half by employee. That is for all earned income.

The new medicare tax puts a 3.8% Medicare tax on unearned income above $200,000. That is for investment income.

Unearned income is still exempt from FICA.

https://www.fidelity.com/viewpoints/personal-finance/new-medicare-taxes

1 Reply

@parados,

parados wrote:

All earned income pays Medicare tax of 2.9%, half by employer and half by employee. That is for all earned income.

The new medicare tax puts a 3.8% Medicare tax on unearned income above $200,000. That is for investment income.

Unearned income is still exempt from FICA.

https://www.fidelity.com/viewpoints/personal-finance/new-medicare-taxes

That's not true.

Quote:

Department of the Treasury
Internal Revenue Service

Additional Medicare Tax Withholding
In addition to withholding Medicare tax at 1.45%, you must withhold a 0.9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. Additional Medicare Tax is only imposed on the employee. There is no employer share of Additional Medicare Tax. All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold http://www.irs.gov/pub/irs-pdf/n1036.pdf

1 Reply

@blueveinedthrobber,

more, starting this year so long as they have earned income above $200,000.

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@parados,

parados wrote:

Quote:
I don't think that allowing the Treasury to borrow from the fund is harmful in itself. as long as it pays back the borrowings with bond rate interest. That aspect of the problem is simply one of cash management.

The problem that is happening is rather than paying back the trust fund politicians have decided to wring their hands and tell us the trust fund is broke when in fact they simply don't want to raise the revenue required to fulfill the obligation.

You've got your facts mixed up. The government does indeed "pay back" the (largely imaginary) "trust fund" as it pays current benefits out of its general funds and current Sociual Security tax receipts. Indeed duiing the last three years it has "paid back" a lot more as the current employee taxes were temporarily reduced by about 2%.

The problem with raising the "revenue" (i.e. tax) required to pay known future obligations is that the amount of increase required increases fast with every year of inaction, and by now the increse required would cripple the economy. More to the point Obama doesn't want to raise taxes of folks he expects might vote for him: he ignored the recommendations of the Simpson- Boles Commissionn he himself appointed. Republicans have been attempting to address the (entirely predictable) Social Scecurity collapse for several decades. It is the Democrats who resist constructive action on this problem.

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@JPB,

You are correct. The 3.8% is on all income over the threshold whether earned or unearned. The newest part is to tax unearned income. Prior to that I believe Romney would have paid zero Medicare tax on his investment income.

1 Reply

@georgeob1,

Quote:

he ignored the recommendations of the Simpson- Boles Commissionn he himself appointed.

The commission in question produced no recommendations whatsoever. There wasn't enough agreement amongst members of the commission to produce a result - what you are referring to was solely the opinion of Simpson and Bowles themselves.

Social Security isn't the problem - it is well recognized and agreed that modest changes to SS taxes and to retirement ages will keep it solvent for a long, long time. It's Medicare that is the problem...

Cycloptichorn

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@georgeob1,

He had to ignore it. It was a poison pill until after the election. Now it isn't.

1 Reply

@parados,

parados wrote:

Prior to that I believe Romney would have paid zero Medicare tax on his investment income.

On Romney's 2010 tax return he did not pay any SS or Medicare tax.

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@JPB,

What more, many of the recommendations put forth by the commission are stupid and wouldn't have the effect that the authors believed.

Cycloptichorn

1 Reply

@Cycloptichorn,

Cycloptichorn wrote:

Social Security isn't the problem - it is well recognized and agreed that modest changes to SS taxes and to retirement ages will keep it solvent for a long, long time. It's Medicare that is the problem...

What more, many of the recommendations put forth by the commission are stupid and wouldn't have the effect that the authors believed.

Cycloptichorn

Your first assertion appears to be false, though it is disguised in vagueries such as " it is well recognized and agreed" ; "modest changes to SS taxes and to retirement ages will keep it solvent for a long, long time" ; etc. If this is so then why hasn't Obama initiated the "modest" changes required? The Republicans have bee proposing these actions for the past four years.

There are many intelligent and well informed folks out there who indicate they believe many or most of Simpson & Boles' recommendations were well-conceived and sound. Perhaps you know something the rest of us don't. Why not share your superior knowledge and insights. Don't just leave us with these premptory and apparently unfounded assertions.

1 Reply

Taxed Enough Already

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