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Should We “Means Test” Social Security?

By JLP | August 21, 2010

Listen to the first few seconds of this video of President Obama explain the social security situation.


This morning I watched a clip on Fox News (not the above clip) with a panel discussing social security and the above clip of Obama. One of the panelists, a Democratic strategist, talked about means testing social security payments so that the “wealthy” do not receive benefits.

Here is the problem with this idea:

It penalizes those who planned for retirement. There are lots of people out there who are making sacrifices in order to put money aside for retirement. People who are foregoing nice cars, fancy houses, and vacations in order to save for their future. Meanwhile, their neighbors are living the highlife and not saving nearly enough for retirement. Then, retirement day gets here and the one who put money back for retirement is going to have to give up some of their social security and the one who did nothing is going to get their full retirement. Crazy.

I think a fairer way to means test (I’m not saying I agree with means testing) is to means test on career earnings. The Social Security Administration has those earnings records. Yes, those who planned for retirement will still be penalized somewhat but not nearly to the extreme that they would be if the means test was performed on retirement assets.

The same Democratic strategist also talked about the social security trust fund. Is there even a trust fund with actual assets? It doesn’t appear so. According to the linked piece, there is an account filled with IOUs.

If only the government would have structured it as a retirement planning system. There were more than enough current workers to fund benefits for those who were currently retired. The balance could have gone into retirement accounts for the current workers. It should have never become the mess it has become. Yes, I’m angry about this because I know that my generation and my kids’ generation is going to get screwed on this deal.

This is what happens when we allow government to do for us what we should be doing for ourselves.

Topics: Social Security | 120 Comments »


120 Responses to “Should We “Means Test” Social Security?”

  1. Jersey McJones Says:
    August 21st, 2010 at 3:25 pm

    “This is what happens when we allow government to do for us what we should be doing for ourselves.”

    In the real world, as opposed to Ideologicaland, a large segment of the population simply never manage to put enough aside for retirement. Be it stupidity, misfortune, happenstance, neglect, laziness, white collar crime, whatever, that is simply the reality. Before Social Security, elderly Americans were among the poorest of their age in the Western World. Now they are comfortable. They deserve it. They worked and contributed to the society and so the society repays them for their contributions by arranging, with them, a safety net for their old age.

    We do not need to means test Social Security, per se. If the wealthy are receiving the benefits, it doesn’t matter – they’re paying taxes anyway. What we need to do is to LIFT THE SS TAX CAP, while further progressivizing the return formula. While this is sort of “means testing,” it can be done in such a way as to allow for pretty large returns in a fiscally responsible way.

    JMJ

  2. JLP Says:
    August 21st, 2010 at 3:40 pm

    The program went beyond its purpose, which was social security…a safety net. Politicians grabbed on and started using it as a way to buy votes. That’s why we’re in the predicament we are in.

    I hate the idea of making the program more progressive. It’s progressive enough as it is. I think to “fix” it, everyone needs to share in the pain.

    It would be fairly easy to look at individuals and see who is really in poverty as compared to those who simply didn’t prepare for retirement. Those who had opporunities and wasted them and now don’t have enough for retirement can move in with relatives for all I care. I mean, if we can penalize the prepared, we can also penalize the unprepared.

  3. Ron Says:
    August 21st, 2010 at 4:37 pm

    When SS was created, the average life span was 67. Two years was the average benefit plan. The program was flawed from the start and now we’re paying the price for allowing bleeding heart policy to bankrupt us collectively.

    No, we should not “means test” Social Security, neither should we further “progressive-ize it. Just bear in mind that for the first $100,000 of ANY salary, the federal government gets 12.4% of it … and they’ve wasted it for 60 straight years.

  4. Tom Says:
    August 21st, 2010 at 6:51 pm

    Without weighing in on the merits, I would like to make a small point on Ron’s comment. While the average male life span was 67 in 1937, that is quite misleading. (Lies, damn lies, and statistics). The primary reason for the increase in average life span since the 1930 is a reduction in infant and child mortality. The expected longevity for a male who was 65 in 1937 was about 13 more years. http://www.ssa.gov/history/lifeexpect.html which only about 5 years less than today. Just to keep the record straight!

  5. mbhunter Says:
    August 21st, 2010 at 11:58 pm

    There will be changes across the board as time goes on. This is just one means to that end (pardon the expression).

  6. Bruce Says:
    August 22nd, 2010 at 1:51 pm

    “I think a fairer way to means test (I’m not saying I agree with means testing) is to means test on career earnings”

    The payouts already are. The greater your contributions the less you receive as a percentage of your contributions.

  7. Jack Says:
    August 23rd, 2010 at 10:07 am

    I would like someone to explain to me how Social Security is Constitutional. (The Supreme Court ruling is a joke — go read it, and then try to explain it in your own words, and you will see it for the farce that it is.)

  8. Ken Says:
    August 23rd, 2010 at 1:08 pm

    If my memory serves me correctly, President Reagan was the one who signed the bill that allowed the social security funds to be borrowed for general spending.

  9. JLP Says:
    August 23rd, 2010 at 1:10 pm

    Ken,

    I remember that! We talked about it at church that day. Remember?…lol.

  10. Jack Says:
    August 23rd, 2010 at 1:58 pm

    What did they do with the SS surpluses prior to that?

  11. jimmy37 Says:
    August 23rd, 2010 at 3:13 pm

    FAIR TAX! FAIR TAX!

    I am sick and tired of being taxed for what I have and not what I spend. Why should I be taxed more because I have more? Your idea about basing a SS means-test, if any, on lifetime earnings is certainly more equitable. This way, the ants and the grasshoppers are treated more fairly.

  12. BG Says:
    August 23rd, 2010 at 8:28 pm

    #11, jimmy37) Look at ‘The Basics’ on the fairtax.org website. They list:

    1) The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars, $358 billion more than the taxes it replaces.

    2) Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system.

    These are two completely contradictory statements. Fair Tax == Fairy Tax.

    For one group to pay less in taxes, means that another group is paying more. Based on the proponents of the FairTax, I’m betting that it is the poor/lower class that will be paying much more in taxes to fund the new tax breaks for the rich that the FairTax will give them.

    As for fixing Social Security: raising the age limits and/or raising the income cap subject to taxation is the best keep it solvent.

  13. Jack Says:
    August 24th, 2010 at 8:28 am

    Considering that the “poor” don’t pay federal income tax anyway, it is fairly certain they would pay more.

  14. JLP Says:
    August 24th, 2010 at 8:34 am

    I think EVERYONE except for the extremely poor should pay taxes.

  15. JJ Says:
    August 24th, 2010 at 10:17 pm

    I’m fine with means testing so long as it is limited to only those that earned somewhere above the cap during their career. Right now you stop paying social security at I think $106,800. If the means testing were done today, and benefits were limited only for those who earned more than $106,800 at some point in their career, I’d be fine with it. Especially, if they were limited by the same amount they would have had to pay in if there were no cap while they earned above $106,800.

    Social security is a beautiful idea implemented poorly. Everyone should pay into it at the same rate for EVERY dollar they earn. Everyone should take out of it an equal amount at equal intervals after reaching an equal age. Those equal amounts should be adjusted based on wage inflation. If there is wage deflation, benefits to seniors decrease. If there is wage inflation, benefits to seniors increase. If the number of retired people is much larger than the number of working people, benefits will likely go down. In other words, why not pay out exactly what is taken in every single year. Hey, the boomers could have had more kids like their parents did!

    AND, there should be NO cap.

  16. Jack Says:
    August 25th, 2010 at 8:51 am

    I’m a little confused by your proposal, JJ:

    “Everyone should pay into it at the same rate for EVERY dollar they earn. Everyone should take out of it an equal amount at equal intervals after reaching an equal age.”

    So, let us say there are two cab drivers, who make the same amount of money per hour. One does his 40 hours each week and goes home, the other is more industrious, and works 60 hours every week. Are you saying the industrious one should pay 50% MORE, but get an equal amount back in retirement?

    Is that fair?

  17. JLP Says:
    August 25th, 2010 at 9:01 am

    Jack,

    That’s too logical.

  18. JJ Says:
    August 25th, 2010 at 12:22 pm

    Yes Jack. That is what I’m saying. Social programs such as social security are not (nor were they ever meant to be capatilistic programs). This does not mean they are wrong. We have never been a nation of pure capitilism (nor will we ever be).

    In your example the more industrious cab driver will still continue to make more money (take home pay). If this were not the case, I would agree with you. If social security was taxed at 10% and the industrious cab driver made 200k and the lazy driver made 100k, the industrious cab driver would make 90k more (marginal rates and tax shelters aside).

    You can’t have pure capitilism without a sea of shanty towns. If you want shanty towns and a more pure form of capitilism, move to a third world country. There is not a single developed nation with pure capitilism (at least not that I know of).

    Are you saying that eliminating the social security cap would make people lazy? What about all the defacto tax shelters the 200k tax driver can participate in. Certainly with more income he is more likely able to contribute the full 46k to a non-prototype ira. He is more likely to be able to afford a high deductible health care plan and shelter the max (5k or whatever it is in an hsa). There are all sorts of shelters that are in point of fact available only to those who make enough to contribute beyond what they pay to support themselves.

    I’m guessing that you and JLP would both support some sort of flat tax, but I wonder if you’ve thought through what it would mean to tax shelters. Certainly if everyone pays the same tax rate, we wouldn’t be able to allow people to shelter money in 401ks, IRAs, SEPs, HSAs, etc. This would mean the tax would no longer be flat.

  19. JJ Says:
    August 25th, 2010 at 12:38 pm

    Sorry if I jumped all over the place in the last post.

    My main point is… until they eliminate the wage cap on social security, you’re damn right it’s ok to conduct means testing.

    I kinda feel like there are so many people who complain about taxes and the government. I guess I just feel that it is an honor and a priveledge to pay taxes in this country. My grandparents had this attitude. The baby boomers do not.

  20. JLP Says:
    August 25th, 2010 at 12:59 pm

    JJ wrote:

    “I’m guessing that you and JLP would both support some sort of flat tax, but I wonder if you’ve thought through what it would mean to tax shelters. Certainly if everyone pays the same tax rate, we wouldn’t be able to allow people to shelter money in 401ks, IRAs, SEPs, HSAs, etc. This would mean the tax would no longer be flat.

    There could still be a flat tax with shelters as long as the money was taxed either going in or coming out of the shelter. It wouldn’t be fair to tax it going in and coming out, would it?

    A “flat tax” is a tax where the percentage paid is the same, regardless of income. It would be similar to tithing. People who tithe give 10% of their income to their church or some other religious organization, regardless of income.

    “I guess I just feel that it is an honor and a priveledge to pay taxes in this country. My grandparents had this attitude. The baby boomers do not.”

    I don’t have a problem paying taxes. What I do have a problem with is

    1) the government TAKING my money and then giving it back to me at some later date. The founders of this country would be appalled if they saw what the government was doing for the people these days. The work of the government should be to provide for the common defense. That’s it. It’s not the government’s job to provide retirement income for people.

    2) the goverment charging me a greater percentage of my income for taxes because they deem I’m “rich.” What added benefits to I get for my added taxes? Do I get more government than someone who pays a smaller percentage of their income in taxes (or no taxes at all)?

  21. JJ Says:
    August 25th, 2010 at 1:29 pm

    I agree with flat tax if money is taxed on the way in (Roth). I do not agree that the tax would be flat if the money is taxed on the way out (because you receive the benefit of compounding on money that would be taxed if you had to use it to support yourself). But, yes if they eliminated things like traditional 401k and traditional IRAs and also HSAs, then I can agree with flat tax.

    In any case, we strayed off point.

    To respond to your point number 1… It was never the government’s plan to give you your money back at some later date. It is not YOUR money. As soon as you pay it in taxes it is pooled and passed out to those who are currently retired.

    For number 2… “the government charging me a greater percentage of my income for taxes because they deem I’m rich”. They are not. They are keeping money you already paid them in taxes. Once you paid your social security tax, that is no longer YOUR money.

    I can see that we’ll never, ever agree on this point. And that’s ok.

    The crap on founders of the country is just that… crap. Per John Adams (a founding father if there ever was one)… “Laws for the liberal education of youth, especially of the lower class of people, are so extremely wise and useful, that, to a humane and generous mind, no expense for this purpose would be thought extravagant.”

    Certainly you would agree that the public school system is a social program. Those who have no kids in public schools don’t get out of it what they put in (nor do those sending their kids to private and still paying taxes for public). Does this mean we shouldn’t have public schools… hell no.

    It’s the same with social security. If you want a bunch of indigent homeless old people living in shanty towns, end social security (only give people back what they put into it). It’s hard to see how this would improve things.

    Today 10.6 million people live on social security alone. Source… http://www.usatoday.com/money/perfi/general/2005-08-15-getting-by-usat_x.htm

  22. JJ Says:
    August 25th, 2010 at 1:30 pm

    Actually, I don’t agree with Roth under flat tax regime either. The problem is that the earnings on the money you put in is never taxed. They’d have to just eliminate all shelters to make it truly flat.

  23. JLP Says:
    August 25th, 2010 at 1:35 pm

    My point number two, which I did not explain, was about federal income tax.

  24. JJ Says:
    August 25th, 2010 at 1:40 pm

    “The work of the government should be to provide for the common defense. That’s it.”

    Does this mean you believe in eliminating the fractional banking system (per Ron Paul). Banks can only lend out the cash that they actually have. Zero leverage is allowed.

    What about the interstate highway system? Just end it altogether?

    Public schools?

    To defend your point, I suspect you’ll say that these things are part of the public defense but somehow social security is not (that the 10.6 million living on social security alone do not need to be publicly defended from poverty).

    Oh My.

  25. JJ Says:
    August 25th, 2010 at 1:43 pm

    I see, your point number 2 is about marginal tax rates (not social security). Again, I’m ok with flat tax so long as all tax shelters are removed.

    You can’t have someone making 12k a year and working their arse off paying their 10% flat tax. And then have another guy making 250k a year paying his 20k a year and sheltering another 50k and call that flat. You also can’t let the 250k guy build up a roth such that a bunch of their investment income is untaxed.

    It’s somethin’, but it just ain’t flat.

  26. JJ Says:
    August 25th, 2010 at 1:44 pm

    In a defacto sense you have no access to shelters if you make only enough for food and shelter. Now that’s fine, but I can’t see giving someone who makes much more the tremendous advantage of an IRA or an HSA or a 401k.

    Don’t you agree?

  27. JJ Says:
    August 25th, 2010 at 1:50 pm

    Yes, they are charging you a greater percentage of your income because you make more (the marginal rate). You are also granted access (in a defacto sense) to shelters that someone making much less will never be able to participate in.

    Do you understand?

  28. JJ Says:
    August 25th, 2010 at 1:54 pm

    Yes, they are charging you a greater percentage of your income because you make more (the marginal rate). You are also granted access (in a defacto sense) to shelters that someone making much less will never be able to participate in.

    The sad part is… you complain about this.

    Feel bad for you.

  29. JJ Says:
    August 25th, 2010 at 1:58 pm

    I mean really, JLP, you are winning (or may have already won). You probably have a decent life with a loving family and can easily support yourself and loved ones in retirement. And still you complain.

    But someone might be getting some of the money I pay in taxes. They might get a larger share than me. Lots of them desperately need this money. They had crappy parents. They made mistakes early in life that they couldn’t recover from. They dropped out of school. Others might even be (gasp) lazy. Why do they deserve MY money. I want MY money.

    Good lord man. You’ve won. Act like it!

  30. Jack Says:
    August 26th, 2010 at 9:50 am

    JJ, first, no cab driver — even one working 60 hours per week — is making $200k per year.

    “Certainly with more income he is more likely able to…”

    That is the crux of the issue, he is NOT “more able to,” he CHOOSES to. He CHOOSES to work more, so that he and his family can have a better life. You would punish him for making that choice.

    “Actually, I don’t agree with Roth under flat tax regime either. The problem is that the earnings on the money you put in is never taxed.”

    OK, JJ, let’s do a little math. Let’s assume that one has $2k to put into an IRA, that whatever is put in will increase by a factor of 10 and then withdrawn, and that there is a flat tax of 10%.

    Traditional IRA:
    Initial Tax: N/A
    Invested: $2,000
    Withdrawn: $20,000
    Tax on Withdrawl: $2000
    Net: $18,000

    Roth IRA:
    Initial tax: $200
    Invested: $1,800
    Withdrawn: $18,000
    Tax on Withdrawl: N/A
    Net: $18,000

    They are IDENTICAL results in a flat tax system.

    “It is not YOUR money.”

    Yes, everything we make belongs to the government, not those who earn it. That is the position of the statists.

    “They had crappy parents. They made mistakes early in life that they couldn’t recover from. They dropped out of school. Others might even be (gasp) lazy. Why do they deserve MY money?”

    You cannot answer your own rhetorical question, can you? You simply want to punish people for working hard and making good choices.

  31. Jack Says:
    August 26th, 2010 at 9:56 am

    Now, let’s look at a few other things:

    1) Education.

    Go read the Constitution. That is the STATES’ job, not the job of the federal (more like “feral”) government.

    2) Interstate Highways.

    One can hardly deny that the IHS goes directly to the “General Welfare of the United States.” Just look at how many trucks there are on the interstates.

    3) Social Security

    The particular clause in the Constitution is “to pay the Debts and provide for the common Defence and general Welfare of the United States.” The feral government no more has the Constitutional authority to provide for my personal welfare than it does to provide me a personal bodyguard or to pay off my credit cards.

  32. JJ Says:
    August 26th, 2010 at 11:41 am

    I realize that a person CHOOSES to work more. For making that choice that person is likely to have another choice (whether or not to shelter a portion of their earnings). Therefore, despite the elimination of the Social Security wage cap, the person working more will also continue to benefit more (in terms of take home pay AND ability to take advantage of more shelters).

    In both of your IRA examples, a person working just as hard but making only enough to provide for basic food and shelter cannot benefit from tax free compounding. I cannot support any shelters under a flat tax regime.

    Education –> Again… per John Adams (a FEDERALIST) “Laws for the liberal education of youth, especially of the lower class of people, are so extremely wise and useful, that, to a humane and generous mind, no expense for this purpose would be thought extravagant.” Perhaps you do not agree that John Adams was a founding father?!?!?!?

    Interstate Highways –> Your argument is that interstate highways go directly to the general welfare of the U.S. but social security and public schools do not? Come on! That’s just silly. 10.6 million people live on social security ALONE.

    Social Security –> That’s exactly right… “GENERAL WELFARE”. 10.6 million people live on social security alone. 10.6 million. In my estimation, eliminating the wage cap would certainly help this groups general welfare.

    Thank you for pointing out that the Constitution (drafted by John Adams) calls for providing “general Welfare”.

  33. JLP Says:
    August 26th, 2010 at 11:46 am

    “10.6 million people live on social security ALONE.”

    They live on social security because it’s THERE! This is just more proof that social security did nothing but make people more dependent on government handouts.

  34. JLP Says:
    August 26th, 2010 at 11:47 am

    JJ,

    Did you see that I deleted the comment you tried to leave yesterday under a different name and email address?

  35. JJ Says:
    August 26th, 2010 at 11:56 am

    Well JLP, you have your fellow citizens (not big government) to blame for depending on social security. See link.

    http://www.gallup.com/poll/127592/americans-shift-expectations-retirement-funding.aspx

    Good luck convincing them that they’ll be fine without it! After all they’ve paid into it all these years (the working poor having paid a much higher effective rate than the working rich). I’m sure you’ll get them all to agree that we don’t need it and they’d be much better off not depending on it.

    I thought you were a financial planner? Surely you realize what would happen if we let people take home social security and ended the system. You actually believe everyone would start saving for their retirement on their own.

    Oh yah, I guess they’d need financial planners. I guess they’d all get one and give him the money they had been putting in social security.

    Come on!

    You’re being a little irresponsible here aren’t you JLP?

  36. JJ Says:
    August 26th, 2010 at 12:01 pm

    Which message?

    I guess you can muzzle people as you see fit. After all, it is your blog. I don’t see how deleting messages will help you convince people to follow your blog. It is more difficult to convince people you are right. It’s easier to just delete their thoughts.

    I would expect this sort of heavy handed tactic from a rabid Republican. Are you saying you are one? I’m interested in serious debate. Is that what I’ll get from this blog?

  37. JLP Says:
    August 26th, 2010 at 12:05 pm

    I deleted the comment you tried to leave under the name, “corn dog.” I guess you thought you were pretty smart changing your name and email address.

    If you want serious debate, why do you have to resort to childish tactics? I guess this fits my impression of a rabid liberal.

  38. JJ Says:
    August 26th, 2010 at 12:07 pm

    No idea who corn dog is JLP.

  39. JJ Says:
    August 26th, 2010 at 12:08 pm

    I would like to see his message tho. Was it vulgar or something?

  40. JLP Says:
    August 26th, 2010 at 12:09 pm

    That’s interesting since both “corn dog” and “JJ” used the same IP address! Do you remember “corn dog” now?

  41. JJ Says:
    August 26th, 2010 at 12:09 pm

    I don’t think I’ve posted anything that’s childish. Direct and opinionated, maybe. Childish, no.

  42. JJ Says:
    August 26th, 2010 at 12:11 pm

    What on Earth did this corn dog say that was so offensive to you? Do you make it a point to delete messages you don’t agree with? Why did you delete it?

  43. JJ Says:
    August 26th, 2010 at 12:14 pm

    You know. I am in a public library. It’s possible that someone else began using this machine after I left. When I left, I was probably still sitting on your page.

  44. JJ Says:
    August 26th, 2010 at 12:21 pm

    Are you ok JLP? You seem really upset. I truly didn’t mean to upset you. Just talking politics and trying to get my point across.

    Truly didn’t mean to offend.

    JJ

  45. JJ Says:
    August 26th, 2010 at 12:51 pm

    I see you would rather debate my identity than the the subject at hand. Perhaps this is your way of conceding the point.

    It is clear to me that means testing is ok unless and until the wage cap is removed.

  46. Jack Says:
    August 26th, 2010 at 1:48 pm

    JJ — the States are perfectly capable of handling education. When the DC public schools are a model, not a disgrace, I will reconsider letting the feral government’s involvement in my children’s education.

    Yes, the IHS is a benefit to the STATES, as per the Constitution. Social Security does not benefit the States in any way. Eliminating the wage cap, you say, will help THAT GROUP’S general welfare. But that is not what the Constitution says, is it? No, it says, “pay the Debts and provide for the common Defence and general Welfare of the United States.”

    Now, before one can get Social Security, one must pay into the system. If they can afford to pay into the system, they could afford to put that money into their own IRAs if the tax were eliminated.

    Let us look at another scenario. Two workers make the same amount of money over their working lives, and retire at 65. One has saved 10% of his income, and now has a tidy nest-egg of, let us say, a million dollars. The other spent it all. You would have us “means test” Social Security, so that the one who made good decisions and saved for his retirement is punished, and the one who made poor decisions and spent all his money is rewarded.

  47. JJ Says:
    August 26th, 2010 at 2:14 pm

    The Federal Government is involved in education for the same reason it is involved in a great many things… there is no other way of preserving the union. If you have one state that is full of indigent homeless people and another state with gleaming public schools, where do you think all the homeless people would move? Do you think the prosperous states would erect barriers to keep people out? Would Vermont prohibit people from moving in from New York such that Vermont could preserve their gleaming public schools?

    All of your arguments sound good until you put the slightest amount of thought into them.

    Thankfully, Libertarianism is dead. The crack pots have moved on to the Tea Party. LOL

    The 10.6 million is just those that live ENTIRELY off of social security. The number grows vastly higher if you talk about those living mostly off social security. So… “that group” is somewhere around 90% of the population over the age of 67. I find it hillarious that you think people are going to vote for any sort of reduction in social security. Ultimately, we’ll be forced to means test it or eliminate the cap.

    And yes, if there were no social security those that saved a million for retirement would pay for those that saved nothing. It may not be through social security, but the homeless elderly will have to live somewhere. They’ll still go to the hospital. I presume you’d still allow them to live in nursing homes. Perhaps in your utopia there are seething masses of homeless elderly. The vast majority of people do not save enough for retirement. Heck, 10.6 million of them saved nothing. Zero.

    Before social security they were all either indigent or supported by younger family members (socialism!)

  48. JLP Says:
    August 26th, 2010 at 2:21 pm

    Do you work at a library? If not, you sure spend a lot of time there…lol.

  49. Jack Says:
    August 26th, 2010 at 2:37 pm

    Since you are in a library, you can look up federal spending on education. Total spending for FY2010 is $1,107.2B, but federal spending is $157.0B — less than 15%. Most of that is spent in federal bureaucracy, and most of the remainder goes to colleges, not to public schools.

    If the feral government does so well with public schools, where are DC’s “gleaming public schools”?

    “And yes, if there were no social security those that saved a million for retirement would pay for those that saved nothing. It may not be through social security, but the homeless elderly will have to live somewhere. ”

    How about with their children?

    Now, let me go back to the two men with equal pay — one saves for retirement, the other spends all his money and retires poor. You would punish the one who made good decisions, and reward the one who made poor decisions?

  50. JJ Says:
    August 26th, 2010 at 2:54 pm

    Let us look at another example.

    One self employed individual makes 300k a year salary.
    $ 6,150 – HSA Shelter
    $46,000 – Non-Prototype IRA Shelter
    $13,243 – Paid Into Social Security

    Marginal taxes paid on AGI of $247,850…
    10% between 0 and 16750 – $1,675
    15% between 16,750 and 68,000 – $7,687.50
    25% between 68,000 and 137,300 – $17,325.00
    28% between 137,300 and 209,250 – $20,146.00
    33% between 209,250 and 247,850 – $4203.54

    Total – $51,037.04

    Effective Tax Rate – 17%

    *** This does not even take into account tax free compounding on the sheltered money!!!!

    One employee making 30k a year.
    $0 – HSA Shelter (all money goes toward food / shelter)
    $0 – IRA (all money goes toward food / shelter
    $1,860 – Paid into Social Security

    Marginal taxes paid on AGI of $30,000…
    10% between 0 and 16750 – $1,675
    15% between 16,750 and 68,000 – $1,987.50

    Total – $3,662.50

    Effective Tax Rate – 12.2%

    Now… Here’s the capper. Since the first person in point of fact can afford the shelters… After the first year he earns an EXTRA $1,564.50 TAX FREE. This number grows exponentially as his hsa and IRA account balances grow.

    After 10 years of each person making the same salary and saving the same amount…

    Person one earns an extra…
    $15,645.00

    This changes there effective rate to…
    16.16%

    As they continue making more, their effective rate grows less and less. Their savings for retirement becomes greater and greater.

    This example also ignores the fact that the first person likely shelters a great deal more in a more expensive home, a possible vacation home, municipal bonds, etc.

    The second person has only social security to rely on. They use all their resources on food and shelter. In the end, the first person with plenty of money saved for retirement (the person able to take advantage in point of fact of the shelters) complains that the second person is getting a free ride. The first person wants all his money out of social security. He complains about marginal rates, socialism, welfare, and public schools.

    Feel bad for you Jack.

  51. JJ Says:
    August 26th, 2010 at 3:31 pm

    If, in the above example, you imagine a rate of return greater than 3% on the sheltered accounts, a flat tax with no shelters would likely cost the wealthy more than the current marginal rates do.

    I am for flat tax / no shelters.

    I am for flat social security tax / no cap.

  52. JJ Says:
    August 26th, 2010 at 3:50 pm

    The fact of the matter is, if you put ANY effort into it at all you can easily shelter over 50k a year from taxes. If everyone did this, it’s hard for me to imagine they’d all be complaining about some poor schmuck making 30k a year that they’re paying to have a retirement with some basic level of dignity.

    I think many of the people who complain are NOT working hard enough to shelter over 50k a year. This lack of personal responsibility means they focus on the government and those less fortunate are trying even less than they are. If they were really sheltering this much would they come on a message board and rant about the pittance being given to the worker making 30k a year?

    It’s rediculous.

  53. JLP Says:
    August 26th, 2010 at 3:56 pm

    JJ,

    #49 – and your point is?…

    The self-employed individual takes on risk, which you so easily ignore since you think they are “rich.” What about all the hours put into his work to make that income? I would be willing to bet that the self-employed person worked A LOT more hours than the person making $30,000.

    The effective tax rate for the $30k earner is 12.2% while the effective tax rate for the self-employed individual is 16.16%. That’s ashame. It should be the same for both! Oh, and you also left out any sort of tax credits for the $30k earner. I’m sure they would get something there. In other words, they aren’t paying $3,600+ in taxes on a $30k income.

  54. JJ Says:
    August 26th, 2010 at 4:00 pm

    I’M THE SELF EMPLOYED PERSON IN THIS EXAMPLE. For the love of Pete!

    Change it to a 5% rate of return for 15 years and see what you come up with for effective rate. I was being very generous with 3%. As I said, I’m also ignoring the other shelters (house, munis, etc).

    If you are sheltering over 50k a year and compaining about some poor schmuck making 30k and ultimately living off soc. sec., that’s just sad.

    It’s a lot of things, but it sure ain’t Christian.

  55. JJ Says:
    August 26th, 2010 at 4:14 pm

    You seem like a talented and educated man. When you go to McDonalds, how many workers do you see with the tools you have. How many people working there have families? How will they support a family and gain the tools you have. The amazing thing is some (but not most) will work their arse off and gain those tools. Generally, they’ll be the ones with slightly better backgrounds than the others. Slightly better parents. Slightly fewer kids to support. Made slightly better decisions early in life.

    To the rest you are saying, I realize you are trying your best, you are the working poor… but I want to keep all of MY money that I put in soc. sec. You’ll have to just never retire and hope your health holds out. Even though I was able to shelter 50k a year from taxes, I want all MY money back. All of it. You just keep working, because you made mistakes, didn’t lead a perfect life. You are destined for the shanty town once I pull this taxation tithe. I’ll be at the beach.

    The funny thing is… many of the McDonalds workers that work their arse off and make it will complain. They’ll say, “I did it, so why can’t everyone else?”. It’s not my fault they had bad parents, why should I pay anything for them. That’s my money. I worked my arse off for it. Why should I share any of it in an egalitarian way. I should decide who I give MY money to. Some of these people, after working their arses off and being able to shelter 50k a year, won’t shelter it. They’ll complain even louder. How can I make this much and still struggle to save for retirement. It’s the government’s fault. It’s bailout nation. It’s social security. It’s the marginal rate. It’s welfare. It’s social medicine. On and on they complain.

    The whole thing is just crap. The sense of… “it is an honor and a privelege to pay taxes in this country” is all but gone.

  56. JLP Says:
    August 26th, 2010 at 4:17 pm

    I’m not angry or complaining about people living on social security as their only source of income. What I’m complaining about is the fact that the system is broke and they want me and everyone else who is still paying into the system to pay even more.

  57. JJ Says:
    August 26th, 2010 at 4:19 pm

    What is your alternative?

  58. JJ Says:
    August 26th, 2010 at 4:23 pm

    The effective tax rate for the $30k earner is 12.2% while the effective tax rate for the self-employed individual is 16.16%. That’s ashame. It should be the same for both!

    To me, the exclamation point made this sound like complaining (just as an example). The funny thing is… I agree with what you say here… everyone should pay a flat EFFECTIVE rate. This would mean flat rate / no shelters. Yes?

  59. JJ Says:
    August 26th, 2010 at 4:25 pm

    Also, I’m not sure I ever said you were complaining (unless of course you work at McDonalds).

  60. JJ Says:
    August 26th, 2010 at 4:46 pm

    I forgot the best part… Give person one a 15% long term capital gains rate on long term taxable stock gains. How much will person one benefit from this? How much will person two benefit from this?

    Imagine peson 1 is Bill Gates or Warren Buffet. What would a flat EFFECTIVE rate / no shelters mean to these two? What would it mean to the country?

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