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Archive for Monday, December 13, 2010

Tax cut concerns Social Security advocates

December 13, 2010

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— President Barack Obama’s plan to cut payroll taxes for a year would provide big savings for many workers, but makes Social Security advocates nervous that it could jeopardize the retirement program’s finances.

The plan is part of a package of tax cuts and extended unemployment benefits that Obama negotiated with Senate Republican leaders. It would cut workers’ share of Social Security taxes by nearly one-third for 2011. Workers making $50,000 in wages would get a $1,000 tax cut; those making $100,000 would get a $2,000 tax cut.

The government would borrow about $112 billion to make Social Security whole. Advocates and some lawmakers worry that relying on borrowed money to fund Social Security could eventually force it to compete with other federal programs for scarce dollars, leading to cuts.

Social Security taxes “ought to be held sacrosanct,” said Rep. Earl Pomeroy, D-N.D., chairman of the House Ways and Means subcommittee on Social Security.

“When you start to signal that the (Social Security) tax levels are negotiable, you end up in long-term trouble, I think, in terms of making absolutely certain that the entitlement funding streams are secure,” Pomeroy said.

Social Security is funded by a 6.2 percent payroll tax on the first $106,800 earned by a worker. The tax is matched by employers. The package negotiated by Obama would reduce the tax paid by workers to 4.2 percent for 2011. Employer rates would stay unchanged.

Obama administration officials say that a payroll tax cut is an efficient way to stimulate the economy by immediately increasing take-home pay for about 155 million workers. The nonpartisan Congressional Budget Office agrees, and many business groups and Republicans support it.

“What came out of the compromise was the idea of the payroll tax holiday, which, frankly, a huge number of economists and other experts had been talking about over the last two years with a lot of support in both political parties,” said Larry Summers, Obama’s chief economic adviser.

The United Auto Workers endorsed the deal, saying, “Working families will likely spend this money in their local communities, creating jobs and stimulating overall growth.”

The payroll tax cut is part of a larger package negotiated by Obama and GOP lawmakers to extend a sweeping array of Bush era tax cuts that expire at the end of the month. Some Democratic lawmakers have balked at the plan, saying it is tilted too much in favor of the rich.

The payroll tax cut would provide relief to any worker earning a wage. It would replace Obama’s Making Work Pay tax credit, which has provided modest increases in most workers’ paychecks for the past two years.

The payroll tax credit would be more generous to individuals making more than $20,000 and married couples making more than $40,000. For those making less, the payroll tax cut would be less than the Making Work Pay credit.

Comments

CorkyHundley 4 years ago

Is SS a private corporation with stock that is traded on wall street? The Democrat clan has chastised normal people for years about the evil poor investment 401k's are. Private investment for your future is fool's gold. Government savings is the best for retirement.

Government social savings. Money that the government forced many to pay into their entire working life should be there already in a lock box right? The government is safer than private businesss.

right?

just_another_bozo_on_this_bus 4 years ago

"Is SS a private corporation with stock that is traded on wall street? "

Thankfully not, or retirees would be totally screwed.

libra101 4 years ago

Social security can pay out at 100% until 2037, and at 75% for the 30 years after that, with no changes at all. Show me the private company that can make such a guarantee and I'll invest every penny I own.

libra101 4 years ago

My bad, the 75% number is good for the following 47 years.

http://www.ssa.gov/oact/trsum/index.html

libra101 4 years ago

It will draw them out of general funds. If those bonds aren't paid back, then the government defaults and China gets pissed. I'd suggest raising taxes on the people who benefited most from this "accounting trick" to pay back the people who paid 13.4% of their income to pre-fund their social security. But I'm just some socialist who thinks you should do your best to keep the promises you made.

libra101 4 years ago

And hence the difference between liberal and libertarian. I think I am the government, you think the government is some corporation. Why is that libertarianism rarely leaves the lab?

scott3460 4 years ago

Nice to see a right winger admit the fascist nature of our current government (the best that corporate money and big media interests can buy.) The problem, of course, is that the promises were made and citizens' tax dollars paid in back when it was "our" government. So your analogy is all wrong. More like the townspeople paid taxes for years and bought land for a park, then a government captured by crooks came along and seized the land to benefit a private developer. Claims of job development are used to hide the transfer of wealth from the public. Steal a candy bar from the local grocer, you are a common thief. Steal on grander scale and you are a "developer" or politician or businessman

jmadison 4 years ago

Social Security = Government sanctioned Ponzi scheme

voevoda 4 years ago

Social Security may be expensive, but remember how things were in the US before it existed. A lot of people lost their retirement money when the Stock Market crashed and banks went bust. Then, after working all their lives, they had no resources for retirement, through no fault of their own.
Already too many elderly people live meagerly, even with Social Security. Abolish Social Security, and this country will face a huge number of homeless, starving, and sickly elderly people. We should respect and care for our elders, and not go back on the promises we as a society have made to them. Should Social Security be reformed? Yes, of course. Provide incentives to able-bodied senior citizens to continue to work full-time and delay taking benefits. Increase incentives for individual retirement savings accounts, so fewer people are dependent upon Social Security to survive after retirement. Index tax rates more closely to earning levels, and benefits to wealth.
To those right-wingers who think abolishing Social Security is a good idea: Go ahead and get your candidates to campaign on this issue. They will lose for sure.

voevoda 4 years ago

Liberty_One, Express your views if you like; that's what the forum is for. But refrain from the personal cracks. They make you sound like an immature smart-aleck, and intelligent people are much less likely to take your opinions seriously.

scott3460 4 years ago

"They will lose for sure."

Not for long. These people control the media, so constant advertising can produce any result they want.

George Lippencott 4 years ago

Interesting. The trust fund is a bunch of bonds in a file cabinet in West Virginia. We will have to raise taxes to pay off those bonds as they come due. We were to start having to do that in about two years. Under our governments new compromise tax scheme we will need to start drawing on general revenues next year. (General revenues – your taxes).

That said, about 60 million Americans draw social security – half of them as their only income. All of them paid into the trust fund for at least twenty years and some for a lot longer.

The program is already means tested as lower income contributors get a greater benefit than their contributions would allow. Those at the higher end get a lesser benefit than their contributions would allow. The highest earners stop paying into SS at about $100K of income. Those earning capital gains for salary pay nothing. Many of them have millions and do not need the program.

How to fix it? Further means test the program for those already on it? Just how much do you cut whose income? What did they do wrong other than trust their government? Means test it further for the future? Who pays in the interim and would those not be the ones receiving less in the future? Is that fair or even reasonable? Rasie taxes - on who? Certainly not the rich or the poor. Tax those in the middle

Where did all the money go? Wars? Social Services? Graft? Pick your choice as it really does not matter – it is gone. Quite a mess.

libra101 4 years ago

It's not gone. It's in T-bills. LO is right, if 15 years from now SS is gone, the US will be as well. China will not look kindly on a default on federal debt.

George Lippencott 4 years ago

It is in a special kind of bond. What I said still applies. We have to buy the bonds back with regular tax revenue. No way around it. I sure wish you were right but you are not.

By the by T-bills are debt that we must pay back to someone - no free ride.

libra101 4 years ago

I get that George. But if we don't buy back those bonds, then we default on them. What do you think the Chinese are going to say if we default? In 230 plus years the US government has never defaulted on a debt and we aren't going to start now. Even if we have to raise taxes on the people who took the money to do it. Or we'll just borrow more, there is still no debt as guaranteed as US government debt.

George Lippencott 4 years ago

libra101.

I suspect we will find a way to reduce the need for redemption by quickly reducing payments to recipients - current and future. So we pay the bonds more slowly but renege on the promises made.

4 years ago

"Where did all the money go?"

It truly doesn't matter, because it had to go somewhere. Seriously, did people just think the government was going to keep the money in a wooden barrel somewhere? Of course the government spent it. That's what they do. And it all would have been fine so long as we had an ever-increasing number of kids who could pay into it, but the Supremes had to go all Connecticut v. Griswold on us so here we are.

So here's a solution:

  1. Raise interest rates by a factor of about 10, to at least 8%, on bank accounts and stop pretending it's income. Those who save for their own retirement ought to be rewarded. Today we royally screw the risk-averse while we bail out the gamblers.

2a. Set a 'hard' retirement age. Congress can decide this number, but every congressman or senator over this age must retire. Sorry, Senator Inouye, if you keep working, so does everyone else; or 2b. Raise tobacco taxes and promote smoking as a sexy lifestyle. Not only will this fill the coffers, it ought to reduce the time most people spend depleting them.

The last choice is probably most important. Whatever we do, the idea that everyone can work for 40 years and then live off SocSec for another 25 or 30 will never work. It doesn't work for pensions, it won't work for SocSec.

We either need to work longer or die younger. I prefer to work longer. Your mileage may vary.

George Lippencott 4 years ago

So what do you do with the people already on it. The debt to buy back the bonds in on the order of trillons over two generations. Your proposals would not kick in with any savings for at least a decade.

4 years ago

"So what do you do with the people already on it. The debt to buy back the bonds [is] on the order of trillons over two generations."

I don't think the people on it are going to live for two more generations.

But let's say the retirement age hypothetically was raised to 70 today, it would save quite a bit of money, as no one would get on for three years, and all that time people at the long end are canceling their accounts. And since more people will collect from age 67-70 than any other three year period, that savings is significant.

Besides, then Nancy Pelosi goes home, since she's over 70. It's a win all around.

George Lippencott 4 years ago

No, but the fund was to pay for those now in their 40s as well as those of us already on it. So unless you really reduce payments you still have to pay for those for the next two decades (not generations- my bad). You might stretch it a bit by delaying retirements for three years but the ranting would be severe

4 years ago

FWIW, I am talking about people who are 66 today, not 40. Decades down the road is decades too late.

I'm actually of agreement with Liberty_One on this one. SocSec is screwed, Medicare is worse*. The math is simply impossible. There is no way the tens of trillions in outlays needed are going to be raised in the marketplace without serious "quantitative easing." Congress won't cut spending and won't raise taxes; they will put everything off until we have our Greek Moment when we simply cannot raise the money and have austerity forced on us by others in a big hurry.

There will be no European Union to bail us out. When we run out of borrowing power, the triage is going to be bloody. Nothing we can do now (even doing nothing) will avoid the ranting. Hopefully we can avoid the bread lines.

  • Thank you, GWB, for adding $55 trillion in unfunded liabilities to the national balance sheet with the stroke of a pen. Most expensive legacy EVAR.

4 years ago

"Really, El_Borak? You're blaming the Supreme Court because you don't have eight kids to carry your grumpy, broken-down tuchus??"

Hah, who says I don't have 8 kids? Granted, I had to adopt a few, but still.

"You don't think an increase in life span had anything to do with it?"

It has everything to do with it. Dude, chill about the Supremes - that's called sarcasm. But the fact of the matter is that any system that is going to pay Generation A from the earnings of Generation A+1 is going to demand an expanding Generation A+x. the Boomers obviously fit the bill, but Gen Xers, alas, we did not. Griswold was just a quip to see if you were paying attention.

But for your point, let's roll back to that magical year, 1935, when SocSec's numbers were being calculated. Someone who turned 65 in 1935 would have been born in 1870 (not sarcasm, I swear). In 1890, those folks would have been 20, in which case, they would have had a life expectancy of merely 41 more years. They would most likely die before getting to vote for FDR a second time. http://www.infoplease.com/ipa/A0005140.html In other words, the vast majority of people never made it to 65, or conversely, SocSec covered very few people of that generation.

Flash forward to today, where people who turn 65 today were born after WWII. Someone who lived to 20 (and therefore presumably started working) could expect to live another 50 years, or to 70 and beyond, Those who reached 60 in 2004 could expect to live another 20 years. So nearly everyone can expect to be on it, those who are on it can expect to be on it a long time, and 'everyone' is a much larger generation than the one paying the bills. It's a nightmare of bad math all around.

irvan moore 4 years ago

doesn't the ss money just go in the general fund so congress can spend it on whatever they want and then say there is no money in social security?

4 years ago

Yes, except when they say there is no money in Social Security, it's the one time they are not lying.

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