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What the Heck is the “Prosperity Bonus?”
By JLP | December 15, 2008
This irritates the heck out of me:
Social Security’s Unfair ‘Prosperity Bonus’ by Michael Messner.
This guy calls the part of the year after which a person has met the income threshold a “prosperity bonus.”
A prosperity bonus?
What the hell?
It’s nothing of the sort! These people have paid their dues so why should they feel guilty for no longer having to pay into the system?
Why is it in America that people who make a decent income are made out to be greedy or lucky and seen as not paying “their fair share” (whatever that means)?
I also love the way he calls the social security program a success. It’s nothing of the sort! It could have been much better had our politicians used it as a way to buy votes.
If you want to fix the social security system, quit making it bigger! Reduce the taxes collected and make the benefits means-tested.
Finally, if Michael Messner feels guilty about his “prosperity bonus,” why doesn’t he give the money away? I would love to see this man’s giving record.
UPDATE: It looks as though I didn’t make my position clear. I think we should keep social security. But, I think we should reduce the tax rate to something like 1% (2% with employer match) and then make the program means-tested. Make it the “Medicaid of retirement.” I would much rather manage the other 5.45% on my own than to have the government do it for me.
Topics: Social Security | 20 Comments »
December 15th, 2008 at 3:10 pm
Whoa! Why should Social Security be means-tested? Why should someone who invested their money instead of spending it be penalized?
Social Security is already a partial welfare program in that poorer wage earners get a bigger relative benefit than richer ones.
December 15th, 2008 at 3:49 pm
I think the issue is that people don’t know how Social Security calculates its benefit. People think it is unfair that the tax on SS (6.2%) ends at $102,000. Yet, what people don’t realize is the retirement benefits end there as well.
In actuality, those who earn $102,000 will receive 1/2 the benefit of someone earning $30,000 as a % of pay. This is because the loose theory (not exactly) behind the #’s is the employee’s contribution should be returned while the employer’s should be redistributed to low wage earners. Thus a low wage earner can get 40% of their pay replaced while a high wage earner would only get 20%.
What people don’t realize is that SS was never suppose to cover the salary replacement for those making over the wage base, thus it is the worker’s responsibility to do this. Thus, instead of paying into Social Security, they pay into their own retirement funds.
Now, Obama has proposed to eliminate the cap ending this supposed prosperity (at least tax employees earning over $250,000 for Social Security – yet get no benefit). This is asking them to pay not only for their own retirement but someone else’s as well which was never the intent of SS. Obama said that his tax plan would not be more than under Reagan, yet Reagan never taxed the SS portion which will make the total taxes paid a lot higher. The implied tax (including funding retirement not covered by SS)can possibly get closer to 70% to 75% under Obama’s proposal for pay above $250,000
39.6% proposed highest fed tax rate
6.0% state tax rate (assumed)
2.0% local tax rates in many cities
6.2% removal of SS wage base cap
1.45% Medicare tax
20.0% Fund own retirement not covered by SS
—–
75.25%
Some say that everyone needs to fund their own retirement thus including it about isn’t fair. Yet, the retirement saving for average family may be closer to 10% (instead of 15 to 20%) due to adding in Social Security. So, really, when you pay gets up to $250,000, the purpose of getting ahead for pay may get limited unless you can get stock options or a % of the company which would be taxed differently. This is scary …. This is their share the wealth.
The issue though is not share the wealth as the wealthy have given (at least some have). Yet, if the wealth is taxed this high, where is the $ going to come from. One word, charities. If you are sharing the wealth via taxes, you won’t give as much thus I regret the hard time charities will have.
Obama and Biden should know this as they didn’t give much to charities due to paying too much in taxes – less than 1% of income for Biden even when his federal pension was funded by tax payers even – not him. If they didn’t give, what will happen when more money is taxed???? There goes the prosperous giving nature of people ….
December 15th, 2008 at 3:50 pm
Since the tax is capped but benefits are as well, I don’t see this as a bonus, though letting the cap rise to cover 90% of wage income is probably justified on an operational basis. Social Security is quite successful for what it is intended to do, providing 42% of pre-retirement wages to the retired and a number of other benefits as well. I know I could not replace its value with an equivalent private solution. At the same time I don’t wish to expand it beyond making it solvent as it leaves room for individual initiative in making up the balance while still providing a safety net. Reducing it just means caving to the spendthrifts that insist on squandering everything they already have and who would then insist on the rest of us making up for their shortsightedness. Means testing beyond its current income taxation is as stupid an idea as can be conceived as the cost would exceed any benefit, and induce people to be spendthrift to fall under whatever testing is applied. While it’s flexibility could be improved, it is a reasonable compromise of goals, and these days will be needed more than ever.
December 15th, 2008 at 3:55 pm
I agree completely. If Mr. Messner is so concerned about others, let him calculate how much above the social security tax base he is and donate that amount to the charity of his choosing. Simply because someone works hard to generate a large income does not mean that they should shoulder the “responsibility” for fixing a broken system. Many people put in a tremendous amount of effort to gain the education, and then put in even more effort to earn such a salary, so why shouldn’t they be allowed to enjoy the fruits of their labor? The argument relating to the decreasing number of traditional pensions is bunk as well. People are more than capable of going out and funding their own retirement, and in many cases people do not contribute enough to their “traditional pensions” to fully fund retirement anyway. He actually states the biggest problem of them all in his own words “it’s more important than ever for Americans to be able to rely on Social Security retirement benefits.” When people start relying on themselves, they will be in a better position.
December 15th, 2008 at 4:05 pm
Still haven’t got allpoliticalmatters.com up and running yet?
I think those earning more than social security could ever hope to repay them (that’s the only reason we’re exempt from social security taxes on income over about $103K) are generally called lucky because we _are_ lucky! We’re hardworking, sure, and most of us are talented, but we’re lucky to have our hard work and talent rewarded monetarily. Talented and hard working people in less high-paying fields have to settle for other rewards, and they’re more likely to need social security. I don’t mind being reminded of this. And I do think the program is a success.
Unless you choose to be a white collar worker, you’re not likely to be able to save up enough to retire on your own. Sure, some people do it, but we can’t count on every farmer, assembly line worker, artist, or non-profit employee making it to a safe retirement on their own. And yet, society needs farmers, people to work on assembly lines, artists, and non-profits. So what do we do? We offer to help, after making sure they chip in, too. Seems fair enough, and successful, to me.
December 15th, 2008 at 4:24 pm
The beauty of the IRS tax forms is that they give you this fancy box that lets you pay WHATEVER EXTRA YOU WANT! Pissed about your “Prosperity Bonus”, just pay more. That’s your IRS-given right. If I were in that fortunate position, I would probably pick a more worthy charity than our government to donate to, but if you think it’s so noble, nobody is stopping you. Personally, I’d love to know how many people actually pay extra taxes. Create an IRS publication that lists them, like the donor listing in the annual alumni newsletter or your symphony/opera/theatre playbill. But my guess is that it’ll be an awfully short publication, since why give your money to the government when you can donate to politicians who will take money from everyone else. It’s like investing!
December 15th, 2008 at 9:21 pm
No means testing. We’ve paid in for decades already and if we are prosperous in our “old age” then damn it! I want a sliver of the (my) pie back!
I will MARCH ON WASHINGTON if they truly go down the road to eliminate the cap. I call all high achievers to do the same. REVOLT!! CARPE DIEM! (and whatever other Latin would do justice to the argument right now…!)
Raise the age for retirement and/or SLIGHTLY bump from 6.4% if you must. If we can’t vote out the morons in Congress, then WE ALL DESERVE to share the pain (not just those who are increasingly targeted to share their resources against their will.)
I do agree w/Pete (#2)–charities will be screwed. I have rechanneled our giving to support our food pantry at church at a higher level (sorry alma mater–life’s a B!+@% these days… )Let’s face it, food and shelter are the highest priorities to keep families afloat. Watch Dr. Phil if you need counseling
(I am being sarcastic on the counseling folks…)
December 16th, 2008 at 2:04 am
Face reality, Social Security taxes are regressive. The Social Security system is regressive. While the payout structure is nominally progressive, its workout is regressive due to shorter lifespans of low earners, plus lower marriage rates (and thus fewer survivors collecting survivor benefits).
You’ve probably encountered the claim that the average black male pays in for decades and doesn’t live long enough to get his money back.
I’m not interested in eliminating the cap on SS taxes, or in “reforming” Social Security – ALL of the prominent “reforms” on the table are highly regressive!
Privatization is the ONLY reform which will allow the working poor to keep their own money and to achieve the financial returns they deserve.
December 16th, 2008 at 11:11 am
When your tax rate decreases above a certain income level, what do YOU call it, if not a prosperity bonus?
December 16th, 2008 at 11:27 am
Boomer,
Give me a break. If the maximum is paid in by an employee, WHY make them pay more? It makes no sense–especially when you consider the fact that Social Security is a lot more valuable to those with lower incomes.
A person making $200,000 per year would have to pay social security tax of $12,840 if the tax was not capped. You think that’s fair? You think they will ever see the benefit of that $12,840?
December 16th, 2008 at 12:55 pm
Sorry for everyone out there but JLP is absolutely right on SS (I can’t believe I just wrote that
SS is a tax, it is not YOUR retirement plan. You pay in today for those who are older. People weren’t supposed to live 40 years beyond retirement. Now that we are, we need to change the plan. Means testing is the just way to fix SS – but of course it will take some massive political cojones to front that.
I would love to take the 3-5% and invest it in my own way and retire knowing I will probably never see SS regardless.
Less tax, and benefit for those who need it. What is there to complain about?
December 16th, 2008 at 2:06 pm
I wonder what would happen if the government gave the choice for each individual to either participate or opt-out of social security?
December 16th, 2008 at 3:29 pm
JLP said:
“Give me a break. If the maximum is paid in by an employee, WHY make them pay more? It makes no sense–especially when you consider the fact that Social Security is a lot more valuable to those with lower incomes.
A person making $200,000 per year would have to pay social security tax of $12,840 if the tax was not capped. You think that’s fair? You think they will ever see the benefit of that $12,840?”
I’m so misunderstood. (lol) I’m not saying anyone should pay more – only that they acknowledge that they are effectively enjoying a bonus when their rax rate drops to zero.
If we just privatized the darn thing, everyone would get what they deserve
I’m still waiting for supporters to say SOMETHING to the person who pays in for decades and dies without qualifying survivors before getting back a dime.
December 16th, 2008 at 4:59 pm
@ Poor Boomer. With regard to the person who pays in for years…isn’t this how risk pools and insurance works? That’s why there are mortality tables for life insurance, differing rates on disability for smokers/nonsmokers, etc. There’s a range of outcomes and that’s how the game is played. Some win big (see below) and some lose (see above).
How about the fairness of a spouse who never worked getting 1/2 of the other spouse’s benefit (with at least 10 years of marriage?) I am not the first to proclaim that stay-at-home parents do not receive enough credit for all they do for society (think of child-rearing, volunteering, etc. as examples.) However, how can a system sustain itself if there is a continuous drain on assets? Yet on the other hand, as much as I’d like to contribute to a retirement plan (on a tax-free basis, of course!), I am unable b/c of my husband’s salary level. Yes, it may be a good problem to have, but when one wonders why so many elderly women are living in poverty, one can certainly point to: 1)not always being able to save on a tax-free basis, 2) limited work opportunities b/c of family demands 3) the thought that you’ll always be a happily-married couple and have someone to help provide for your needs, not paying attention to the possibilities of death and divorce.
Just rambling…there are no easy answers. Privatization may be what we need but w/so many “unsophisticated investors” (the phrase of the week apparently) how in the world could this ever work?!!
December 16th, 2008 at 11:55 pm
Stacey said:
“Raise the age for retirement and/or SLIGHTLY bump from 6.4% if you must. If we can’t vote out the morons in Congress, then WE ALL DESERVE to share the pain (not just those who are increasingly targeted to share their resources against their will.)”
Sorry, no can support! That’s class warfare and just another way to make Social Security more regressive than it already is.
December 17th, 2008 at 12:00 am
JLP asks:
“Why is it in America that people who make a decent income are made out to be greedy or lucky and seen as not paying “their fair share” (whatever that means)?”
The rules in America are rigged in favor of the wealthy. Most taxes in this country are regressive, especially at state and local levels.
Life is sufficiently regressive; the working class doesn’t need the additional burden of regressive taxes.
December 17th, 2008 at 12:07 am
Stacey said:
“@ Poor Boomer. With regard to the person who pays in for years…isn’t this how risk pools and insurance works? That’s why there are mortality tables for life insurance, differing rates on disability for smokers/nonsmokers, etc. There’s a range of outcomes and that’s how the game is played. Some win big (see below) and some lose (see above).”
At least life insurance is a voluntary purchase; Social Security is an involuntary tax which does a disservice to those who would rather fund their own retirement and provide for their own heirs.
December 17th, 2008 at 12:10 am
Stacey -
And elderly women are living in poverty because the financial return on Social Security taxes (er, contributions) is so low. God knows that the taxes paid by poor men are being redistributed to superannuated women – and yet it’s not enough.
December 17th, 2008 at 7:45 am
@ Poor Boomer–I’m enjoying the debate, but must disagree w/some of your stances. Re: comment #16 (and I know we’ve been around this bend before in another post…) On the surface it may look like things are rigged in benefit of the “wealthy” however there are plenty of tax “tweaks” that keep the wealthy from running away w/the store. These include: wonderful AMT, phasing out personal exemptions, limiting/eliminating IRA participation, reducing itemized deductions, reducing/eliminating child tax credits, forget about the savers incentive credit, no chance at deducting rental losses (have to carry forward), etc.
@# 17, I hear you about SS being an involuntary tax. One might posit that all our taxes are involuntary
I think my paying more for someone who doesn’t work as hard as my husband and I (and who consequently earns less) is an involuntary tax on US! I think THAT is class warfare!
@18 Elderly women would still be living in poverty even if the returns were higher (and wouldn’t privatization be wonderful for all in this current economic climate?!!) We are living too long and covering too many people at amounts too high vs. what was “contributed.” Cut benefits, raise the 6.4% rate, and bump the full retirement age a couple years and perhaps we all can see some SS when we need it in 30 years.
And finally, re: regressive taxation on the poor. Of course I sympathize. Taxes suck. But what are we supposed to do, give everyone earning under $40,000 a free pass on all taxes that support the infrastructure of our society/country? That seems “fair”…Maybe my husband can work 90-hour weeks to help everyone out…
December 17th, 2008 at 2:31 pm
“Why is it in America that people who make a decent income are made out to be greedy or lucky and seen as not paying “their fair share” (whatever that means)?”
I wonder this too. What ever happened to the land of the free and the American dream of working as hard as you can to make your life better for yourself? Well, now it’s work as hard as you can so you can make more and get taxed more to support programs you completely disagree with and that waste your money on bureaucracy anyway. Gotta love government.