Attention Working Americans: Democrats Want To Hike Your Taxes By $1.5 Trillion
S E E D E D C O N T E N T
Amid all the hoopla about Democrats wanting to raise taxes on the rich, they are quietly working on a bill that would increase taxes on every working family in America. Why? To fund expanded benefits for baby boomers hitting retirement.
The Social Security 2100 Act would hike the combined payroll taxes paid
by workers and their employers from 12.4% today to 14.8% by 2043. The bill would also apply the payroll tax on incomes over $400,000.
According to the Social Security Administration, in the first 12 years alone, this would amount to a $1.5 trillion tax hike.
A Staggering Social Security Tax Hike
Once the tax hike's fully phased in, workers and employers will be paying $340 billion more a year in payroll taxes.
As a share of GDP, Social Security taxes would rise to 6.5%, up from the current 4.5%.
For families making the median income, it means paying an extra $720 a year to Social Security. But that's only half the tax bite. The employer's share effectively comes out of workers' pockets as well, in the form of lower wages. So, the real increase is more like $1,400 a year.
It is, in other words, a staggering tax hike.
The economic effects of this hike will not be pleasant. Andrew Biggs, a scholar at the American Enterprise Institute, explained to the House Ways and Means Committee earlier this month, the impacts will likely be: a reduction in the labor supply, as well as less private savings and more household debt, particularly among lower-income families.
Biggs also notes that such a tax hike will raise far less money than predicted, not only because there will be fewer jobs, but because the payroll tax hikes will suppress wage growth, which will mean less income tax revenue.
The bill's sponsor, Rep. John Larson, says that, even so, this plan will not only keep Social Security solvent, it will allow for a big increase in benefits.
More Social Security Benefits
Among other things, Larson wants an across-the-board increase in benefits for current and future retirees. A higher annual cost of living adjustment. And a stronger minimum benefit.
"The Social Security 2100 Act shows that Social Security is affordable," Larson says . "It increases benefits and strengthens the Trust Fund, and it is fully paid for." The bill has some 200 co-sponsors — all Democrats.
On paper, at least, Larson is correct.
Number crunchers at the Social Security Administration said that, even with the added benefits, the plan would keep the program solvent for at least the next 75 years.
But that's just an educated guess. And not a very good one.
First, it doesn't account for the negative effects the tax hike would have on jobs, wages and economic growth.
A Bad Track Record
Second, the Social Security Administration doesn't exactly have a stellar record when it comes to making such long-term projections.
For example, in 1983, the federal government boosted Social Security taxes, and cut benefits. This was supposed to keep Social Security on a sound footing for 75 years or more. In fact, the Social Security Administration predicted that the program would be running annual surpluses until about 2025.
In reality, Social Security started running annual deficits in 2010. By 2025, these annual shortfalls are on track to likely top $202 billion. The Trust Fund is now on track to become insolvent by 2034.
By expanding benefits now, and hoping the tax hikes will fill in the gap later, Larson risks only further destabilizing the program's already shaky finances.
A Better Way
There's a bigger problem with this plan, however.
Social Security is already too gargantuan. (It eats up 24% of the federal budget.) It takes too large a share of workers' incomes, discouraging private savings. And for most people working today, it provides a lousy — often negative — rate of return.
Rather than expanding Social Security, the U.S. should be moving in the opposite direction through partial privatization. Let workers put more of their own hard-earned money in personal savings accounts that can't help but perform better than Social Security.
After all, that's what Sweden did in the 1990s, when it realized its public retirement program was going bankrupt.
And we all know how much Democrats love to compare the U.S. to countries like Sweden.
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Once the tax hike's fully phased in, workers and employers will be paying $340 billion more a year in payroll taxes.
As a share of GDP, Social Security taxes would rise to 6.5%, up from the current 4.5%.
For families making the median income, it means paying an extra $720 a year to Social Security. But that's only half the tax bite. The employer's share effectively comes out of workers' pockets as well, in the form of lower wages. So, the real increase is more like $1,400 a year.
It is, in other words, a staggering tax hike.
The economic effects of this hike will not be pleasant. Andrew Biggs, a scholar at the American Enterprise Institute, explained to the House Ways and Means Committee earlier this month, the impacts will likely be: a reduction in the labor supply, as well as less private savings and more household debt, particularly among lower-income families.
Biggs also notes that such a tax hike will raise far less money than predicted, not only because there will be fewer jobs, but because the payroll tax hikes will suppress wage growth, which will mean less income tax revenue.”
At least we finally hear democrats talking about fixing the Social Security problem. We once thought they might never admit there was a problem. Of course they plan to expand it as well. I do favor part of the Bernie Sanders plan which would tax people making over $250,000 a year. I also think it should be means tested. No matter how much one "contributes", should one become a millionaire, SS payments should then be forfeited.
There is a good side to this talk by democrats. No legislation on SS goes anywhere without the approval of the US Senate & the President. That means negotiation. Let them tax the rich and means test SS. Not one penny of investment taxes and we may finally fix this troubled yet most popular entitlement.
I agree with you - that would change the fundamental premise of SS, and I imagine lots of people will complain. But doing nothing isn't an option.
Will you claim at 62 or wait? I'm thinking of claiming early. My reasoning is that you have to live until 78 or so before you end up with less money overall than if you had waited to claim until age 70. And I wouldn't have to take as much out of my retirement account, so I'd be better able to ride out any downturns. My dad died at age 69 ... of course nobody knows how long they will live. I think if I get diagnosed with Alzheimers or dementia, or a really bad disease, I will take myself out before I get to where I'm incapable of doing it ... but we shall see. Maybe I'll end up doing the sensible thing that the financial experts recommend, and wait. Hard decision when nobody knows how long they'll live.
Then they shouldn't have to pay into a system that was designed as a "Retirement" fund for "THE ONE" contributing to themselves !
I am as well. My main reasoning is who knows what cuts the thieves in DC will make down the road. One thing i am pretty sure of. Benefits WILL NOT go up (inflation adjusted) in the future. I'm pretty sure i'm going to take what i can get, as soon as i can get it.
Few more years to think about it though. Who knows where the markets will be then.
Seems to me that this would get more people to decline to plan for the future. If you are forced to pay into a retirement plan and due to your money management skills you later find out you cannot draw on that retirement plan, why would you ever save money in the first place?
Let's be honest, a million dollars is not going to last all that long in retirement if you live into your 80's, you cannot plan on SS being able to meet all your needs.
I've never locked in my losses during a downturn, and I have enough time to weather another one before I retire. But once retirement gets closer, I'll have a lot of thinking to do. There's an interesting school of thought that has you decrease your exposure to equities at first when you retire, and then actually ramp them back up.
I keep trying to get my 87 year old mom to marry a rich old guy with no heirs, but so far she's not cooperating. So that part of my retirement plan is apparently not going to work out.
That's a good point. If there were means testing, it would have to be a higher amount to disqualify you from receiving SS. And since it was not designed as an entitlement, really - the amount you get is based on how much you've paid in - it would cause a huge uproar. But then, so will any change that's made, because none of them will be easy to take.
Which is exactly why I did it.
I continue to work as a 1099 and they (SSA ) make adjustments if I make too much, but I also continue to pay into the system, possibly raising my monthly deposit when
and if I stop working altogether ( not in the foreseeable future,
)
Yeah i doubt i'll ever stop working either as long as i'm able but i'll be VERY happy to lose the responsibility of running a company.
I doubt i'll miss that in the least.
I’m going to try to get to 67 to begin regular retirement benefits. Not enough to live on at 62 and other disincentives to keep working and no Medicare. 70 is waiting too long if life is not as long as hoped after that point. If I can work full time past 67 and receive full benefits, I will.
Disgusting and a great example of why I never voted for a Democrat and probably never will. Theft and redistribution I do not support. Why work when you can vote for a free ride on your successful neighbors back? Makes me want to puke listening to these thieves. My grandfather a life long conservative that dug graves during the depression never forgave FDR for all the damage he did and we are still paying for.
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I prefer partial privatization as well. I remember when Obama did that stimulus with a partial social security tax holiday. During that time I put every penny of that into my personal Roth IRA and Roth 401k. A much better use of that money.
I'd prefer that any privatization be voluntary. I'm a good investor and would have chosen privatization, but I know lots of people who have no clue and would end up with no retirement if they did it on their own. Unfortunately, having the government take part of their money and invest it for them is the only viable option for some folks.
Which is why I said partial privatization. The employer half should always be in present plan. The personal contribution portion should be 50% voluntary and 50 current plan at any age and those under 60 should be able to have 75% of personal contribution voluntary.
Crap like this is why people don't trust the rich and their little wannabe puppets. If the full tax is supposed go into effect by 2043 then most of the Baby Boomers are going to be dead. This proposed tax increase won't help Baby Boomers that much, if at all.
It's not 1980. The intervening 40 years has made blaming the Boomers ridiculous. The truth is that the Boomers created a monetary surplus in the SoSec trust fund and the Congress, owned by the rich, don't want to give up that money. Paying off the debts Congress created to sell out America would wreck the economy of the universe.
If the author has to lie right out of the starting gate, then be assured the rest of the screed won't be honest.
Yup !!
And once again, the mouthpieces in service of the rich are showing their fear. The only question is why. After all, the rich will still be...…………..rich, right?
As far as 'partial privatization' for Social Security? Do not know why this is even a matter of discussion. There are thousands of private investment vehicles anyone can invest in for their retirement in order to augment their financial situation in retirement.
Any suggestion to 'privatize or partially privatize' Social Security is a veiled attempt to remove control of Social Security assets from the people the program was designed to benefit.
Here's another little gem of dishonesty from the seed:
"Second, the Social Security Administration doesn't exactly have a stellar record when it comes to making such long-term projections.
For example, in 1983, the federal government boosted Social Security taxes, and cut benefits. This was supposed to keep Social Security on a sound footing for 75 years or more. In fact, the Social Security Administration predicted that the program would be running annual surpluses until about 2025."
How was anyone in 1983 supposed to forecast that American capitalists would begin moving to communist and socialist countries? How were they supposed to know that the Clinton administration would impose NAFTA on the United States? How were they supposed to know the Federal government would be running trillion dollar deficits? How were they supposed to know the national debt would grow to $22 trillion?
Yes, there is a bad track record. But that bad track record belongs to all the rich capitalists and politicians who have dedicated their lives to selling out America just to enrich themselves. How was anyone in 1983 supposed to know just how badly the business community would treat the United States?
Better yet. How was anyone to know that President Eisenhower's Farewell Address would have such implications for the future of America's wealth and where that wealth would end up?
And here is the final monstrous lie from the seed being used to justify selling out America:
"Social Security is already too gargantuan. (It eats up 24% of the federal budget.) It takes too large a share of workers' incomes, discouraging private savings. And for most people working today, it provides a lousy — often negative — rate of return.
Rather than expanding Social Security, the U.S. should be moving in the opposite direction through partial privatization. Let workers put more of their own hard-earned money in personal savings accounts that can't help but perform better than Social Security."
Yes, Social Security is gargantuan. That's because there is still a large labor force in the United States, in spite of the best efforts of rich capitalists and politicians to eliminate jobs. Social Security still pays for itself; in business terms Social Security is still running a profit. So the large Social Security outlays in the Federal budget are paid for by a large stream of revenue from Social Security. Eliminating the outlays doesn't mean the government can keep the revenue. Eliminating Social Security means that Federal deficits will be larger. How is that a good thing?
The private sector does not invest in creating jobs in the United States. American capitalists create jobs in China, Vietnam, Philippines, Malaysia, Thailand, and India. The private sector sells out America so that the rich can enrich themselves. America, Inc., is headquartered in Asia. That's why American businessmen and the US Chamber of Commerce wanted the Trans Pacific Partnership.
Privatizing Social Security means American workers would have a vested interest in cutting their own wages and eliminating their own jobs. Those private sector investments won't grow without large amounts of profits. The only way to obtain large profits in today's global economy is to pay lower wages and eliminate jobs; that's what American capitalists have been telling us. Without jobs and wages, workers cannot be investors. Privatizing Social Security is self defeating. But then that's the whole idea, isn't it?
Huh? How would allowing those of us who understand investing to make our own choices about how that 12.4% is invested cut my wages or eliminate my job? It might negatively impact the US because it's not likely that anyone who understands enough about investing to choose to manage it themselves would put 100% of that money in Treasuries, but that's a different matter.
Where do workers acquire money to invest?
If workers are provided shares in their company as part of their compensation, then workers have a vested interest in the company being profitable. Their own wages and benefits are a cost to the company that lowers profitability. So, increasing wages and benefits reduces profitability and lowers share value. If the workers want higher share value then they have a vested interest in keeping wages and benefits low and a vested interest in eliminating jobs. No matter which priority the workers choose, they are going to lose money either in the present or in the future.
Passive investors do not make money by producing something. Passive investors make money by taking a portion of the money generated by productive activity. Workers compete with passive investors for available money that has been generated. A passive investor has a vested interest in eliminating jobs and lowering wages. Hence a worker investing a portion of their income in passive investments has a vested interest in lowering their own wages and eliminating their own job. A situation is established where workers are competing with themselves.
Do you remember Enron? Nobody should have all their eggs in one basket. Sure, a bunch of folks at AOL got rich back in the day. But in general, the advice is that if you get shares in your company stock, you should sell them and invest them in other companies. You're already dependent on the health of that company for your paycheck and you do not want that much risk. And the typical employee wouldn't have enough a vote to make a difference in the scenario you outlined, even if they were dumb enough to try to sabotage their jobs. Also, btw, increasing wages and benefits does NOT necessarily reduce profitability; reducing turnover actually saves money.
And I'm not talking about being given shares in my company, anyway (btw, many of us work for private companies that don't have stock). I am talking about using the money that's being withheld from my paycheck and which my employer contributes to SS to make my OWN investment choices instead. You're talking about something else altogether.
If you work for company A and invest in company B then you are directly competing with the workers at that company for a share of money generated by company B. For your investment to grow you have a vested interest in company B keeping labor costs low. Your investment grows by taking away money from workers at company B. More for you, less for them.
So, the company you work for replaces the FICA tax, as part of your compensation, with company shares. All corporations have shares or stock but not all corporations sell those shares publicly. If you work for a corporation then, yes, that business has issued shares or stock held by investors within the business and can issue new shares within the corporation.
I DID work for company A and I invested in companies B, C, D, and E. Now I work for a private company which does not issue shares. Private companies MAY issue shares but they don't necessarily do that. No private company I've ever worked for has done that except for one, SAIC. And it was employee-owned.
And if they did issue shares, I would not be on the board of directors, nor be a majority (or even voting) stockholder of any of them, so even if I had a vested interest it wouldn't matter. I don't get a vote. Most stockholders don't. I own part of Berkshire Hathaway and I have absolutely no say in what Warren Buffett chooses to buy, I can assure you.
And where do you get the idea that the company will replace the FICA tax with company shares? Since my company doesn't issue shares, that won't happen. And even if it did, issuing shares would kill the whole idea of replacing SS with an option where I could choose how I invest. Getting company shares is in direct opposition to that idea.
I am talking about getting MONEY and not having my FICA payroll tax withheld, and gettin the 6.2% (in cash) that the company would no longer have to pay, and investing that money as I choose.
Also, many people don't even work for corporations.
Okay, how is that supposed to work?
What you are proposing is to eliminate Social Security. Social Security outlays amount to ~5 pct of GDP. FICA taxes are used to pay Social Security benefits that are broadly distributed throughout the economy; the money is not concentrated in investment accounts. What do you think eliminating Social Security would do to the economy?
The real headline should read:
Attention Working Americans: Democrats Want To Fund Your Social Security By $1.5 Trillion and Extend the Program for 75 Years
"Number crunchers at the Social Security Administration said that, even with the added benefits, the plan would keep the program solvent for at least the next 75 years."
$5 trillion of our national debt is owed to ourselves, to the social security fund the government borrowed from. We were able to do that because for a long time we were taking more than we were paying in benefits. Now we have the baby boomers starting to draw on it and it will only last so long without increasing funding. Is 2.4% really SO MUCH that we have to ditch the whole system and privatize it putting elderly peoples financial livelihood in the hands of Wallstreet? Really? We need to not only pay back what we've borrowed but we need to fund social security into the next century because it has been working as intended for the last 84 years and has become hugely popular among Americans, both conservative and liberal.
Thankfully, there are some positive signs for the future of social security. As much as the baby boom is throwing a wrench in the machine with the huge increase they had in birth rates after WW2, we are now experiencing almost the exact opposite.
"U.S. fertility rate continues to decline, reaching lowest level in 40 years"
So once it's stabilized after the baby boom, it will likely stay funded well into the next century and beyond and we might even be able to reduce the deposit percentage after just a few decades at the 2.4% increase.
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SS is not a savings account for your retirement. It is a tax on the currently working to pay for benefits of (usually) retired workers. Ida Fuller, the first recipient of SS put in $25 and collected $22,000. This nonsense of investing your SS tax amount would mean eliminating SS because there would be no money at all to pay for current collectors. SS & MC changed the descent into poverty and disease that used to accompany growing old into a decent retirement.
It was not originally intended that way. Johnson severely damaged it by putting its proceeds into the general fund to mask the size of deficits when SS was running surpluses. The key is partial privatization to maintain a safety net and enhance returns for individual future retirees.