Stipulated: Payroll Taxes are Normal Taxes Now what?

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In summary, the conversation discusses the issue of tax burden and progressive/regressive distribution. There is a debate on whether all types of taxes should be treated equally when calculating the tax burden. Liberals argue that the tax code is not progressive enough and the rich should pay more. The main plan proposed by liberals is to let the Bush tax cuts expire for high wage earners while renewing them for lower wage earners. However, the conversation suggests that the root of the problem lies in the flat nature of the payroll tax, particularly the $106k cutoff for Social Security. The suggestion is to remove the cap and even apply a progressive scale to the SS tax. The conversation also touches on the issue of social security benefits and the blurred lines between different types of
  • #1
russ_watters
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Stipulated: Payroll Taxes are "Normal" Taxes... Now what?

Ok, so let's assume for a minute I accept that all types of taxes should be treated equally when calculating the tax burden and progressive/regressive distribution. Now what? Liberals use the argument (by all means, correct me if I get this wrong) that since the tax code is not very progressive, the rich aren't paying their fair share and should be made to pay more. The only clear plan I've seen from most liberals - and most importantly, from Obama - is to let the Bush tax cuts expire for high wage earners while renewing them for lower wage earners. This perplexes me:

AFAIK, the federal income tax is the only piece of our entire tax code that has a heavily progressive structure. The primary culprit in making the code flat to regressive, particularly above $106K is the flat nature of our payroll tax and in particular the $106k cutoff for Social Security. So it seems illogical to me to not attack the problem directly. If the tax burden becomes regressive at high incomes and the primary culprit is the Social Security tax, shouldn't logic dictate that the fix should be to remove the $106k cap and even apply a progressive scale to the SS tax? Why are Democrats not [loudly, anyway] advocating this more direct approach to fixing the problem?
 
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  • #2


My understanding is that social security benefits are supposed to be progressive (proportionately better for those who didn't contribute as much) but I don't really have a good idea on how it works
 
  • #3


russ_watters said:
Ok, so let's assume for a minute I accept that all types of taxes should be treated equally when calculating the tax burden and progressive/regressive distribution. Now what? Liberals use the argument (by all means, correct me if I get this wrong) that since the tax code is not very progressive, the rich aren't paying their fair share and should be made to pay more. The only clear plan I've seen from most liberals - and most importantly, from Obama - is to let the Bush tax cuts expire for high wage earners while renewing them for lower wage earners. This perplexes me:

AFAIK, the federal income tax is the only piece of our entire tax code that has a heavily progressive structure. The primary culprit in making the code flat to regressive, particularly above $106K is the flat nature of our payroll tax and in particular the $106k cutoff for Social Security. So it seems illogical to me to not attack the problem directly. If the tax burden becomes regressive at high incomes and the primary culprit is the Social Security tax, shouldn't logic dictate that the fix should be to remove the $106k cap and even apply a progressive scale to the SS tax? Why are Democrats not [loudly, anyway] advocating this more direct approach to fixing the problem?

Depending on the details, I would tentatively support that. On the other hand, if you're going to treat social security as some kind of forced savings account, where you get back what you paid in, you'll also increase the outgoing payments as much as you increase the incoming payments. I don't know if that would do anything to "save" the program.

As for why Democrats aren't pushing for such reforms, I have no idea, I'm not a mind-reader.

Social security pays for a lot more than just retirements. There's also social security disability payments to consider. So, people cannot get exactly out of it what they paid into it. Some amount goes to disability payments. I know this sounds communist of me, but the wealthiest retirees wouldn't be as inconvenienced by receiving a smaller proportion of what they paid into social security as would a poor retiree.

The details get a bit hairy, but I'd generally support a plan to remove the social security tax cap.
 
  • #4


Social security payroll taxes pay for more than just retirement and disability payments; they pay for everything: the Treasury has borrowed large sums from the SS fund leaving IOU paper that it has no ability to repay under the current circumstances.
 
  • #5


Jack21222 said:
The details get a bit hairy, but I'd generally support a plan to remove the social security tax [strike]cap[/strike].

There, I fixed it ;)

mheslep said:
Social security payroll taxes pay for more than just retirement and disability payments; they pay for everything: the Treasury has borrowed large sums from the SS fund leaving IOU paper that it has no ability to repay under the current circumstances.

That's the problem. The lines are blurred between the Income Tax, SS Contributions, and Medicare Contributions after they leave your paycheck. We shouldn't even need to have this entitlement discussion (during budget talks) because they were supposed to be self-sufficient. Maybe the Cloward-Piven strategy is working?
 
  • #6


russ watters said:
Ok, so let's assume for a minute I accept that all types of taxes should be treated equally when calculating the tax burden and progressive/regressive distribution. Now what? Liberals use the argument (by all means, correct me if I get this wrong) that since the tax code is not very progressive, the rich aren't paying their fair share and should be made to pay more. The only clear plan I've seen from most liberals - and most importantly, from Obama - is to let the Bush tax cuts expire for high wage earners while renewing them for lower wage earners.
The government needs revenue. The logical thing to do is to let the Bush tax cuts expire across the board. If this creates particular problems for low wage earners, then this will become evident and can be dealt with accordingly.

The SS tax is a flat tax that I would favor increasing by a few points, across the board. This might result in a surplus of funds specifically earmarked for SS programs especially if the main SS retirement program is changed to a welfare program that pays a flat monthly rate to means-tested qualifiers (who've paid in a certain minimum amount) after a certain age. 62 can remain the retirement age. Maybe the retirement age can even be lowered. I'm supposing that there will be a decreasing need for elderly workers. Anyway, in the scenario I've suggested, SS payments wouldn't be used in conjunction with work income to raise a person's total income above subsistence level. If it takes a bit of SS money for a low wage earner (who's working beyond retirement age) to have a subsistence level total income, then SS retirement payments can be coupled with work income to give the person a subsistence level total income. Otherwise, it's one or the other.


russ watters said:
This perplexes me:

AFAIK, the federal income tax is the only piece of our entire tax code that has a heavily progressive structure. The primary culprit in making the code flat to regressive, particularly above $106K is the flat nature of our payroll tax and in particular the $106k cutoff for Social Security. So it seems illogical to me to not attack the problem directly. If the tax burden becomes regressive at high incomes and the primary culprit is the Social Security tax, shouldn't logic dictate that the fix should be to remove the $106k cap and even apply a progressive scale to the SS tax? Why are Democrats not [loudly, anyway] advocating this more direct approach to fixing the problem?
I can't speculate knowledgeably on why our elected representatives do (or not) what they do (or don't). Just chalk it up to (political) business as usual. It does seem clear that they're, collectively, more concerned with their own immediate fortunes (political and otherwise) than with solving the country's problems.

Anyway, as you say, it's logical to remove the $106K cap, especially if the SS retirement program is conducted as a welfare program for the elderly poor. But it doesn't seem that it would be necessary to make the SS tax progressive. It can be kept flat, though maybe increased a bit across the board following normal inflationary trends. The US already has a substantial progressive federal income tax. Just let the Bush tax cuts expire.

As for the rich paying more in taxes. I don't think it's really a matter of fairness. The government needs revenue. It's just logical, and in keeping with the promotion of the general welfare, to tax people whose wealth increasingly exceeds subsistence level at increasing rates. Unfortunately, the progressive tax is part of a ridiculously complicated tax code with a myriad of ways for the very rich to avoid actually paying that progressive tax.

A flat federal income tax in conjunction with a simplification of the tax code and elimination of the many complications which enable avoidance of tax paying (especially wrt the very rich) makes the most sense to me. But obviously the very rich would rather have a progressive tax code which maximizes tax avoidance complications than a flat tax code which minimizes tax avoidance complications. And governments, the US included, dance to the tune of the very rich.
 
  • #7


russ_watters said:
Ok, so let's assume for a minute I accept that all types of taxes should be treated equally when calculating the tax burden and progressive/regressive distribution. Now what? Liberals use the argument (by all means, correct me if I get this wrong) that since the tax code is not very progressive, the rich aren't paying their fair share and should be made to pay more. The only clear plan I've seen from most liberals - and most importantly, from Obama - is to let the Bush tax cuts expire for high wage earners while renewing them for lower wage earners. This perplexes me:

AFAIK, the federal income tax is the only piece of our entire tax code that has a heavily progressive structure. The primary culprit in making the code flat to regressive, particularly above $106K is the flat nature of our payroll tax and in particular the $106k cutoff for Social Security. So it seems illogical to me to not attack the problem directly. If the tax burden becomes regressive at high incomes and the primary culprit is the Social Security tax, shouldn't logic dictate that the fix should be to remove the $106k cap and even apply a progressive scale to the SS tax? Why are Democrats not [loudly, anyway] advocating this more direct approach to fixing the problem?

I think part of why SS is taxed that way is an artifact of the original design as a 'forced' retirement plan. So the original plan was to only tax as much as the government was going to return to an individual anyhow.

IMO, Democrats are trying to talk as little as possible about SS. If they want to change one major plank of it (income collection cap), it means total reform for the whole system which can only mean trimming it down and loss of political capital for them in the end. Unfortunately, I think real change in SS will only come after the baby boomers are both out of office and out of political clout via the AARP.
 
  • #8


Why is it not the "logical thing to do" to cut government spending, rather than raising taxes across the board? Then, if this creates particular problems for government, "then this will become evident and can be dealt with accordingly."
 
  • #9


Cutting spending won't make our taxes more progressive. I'm trying to understand the liberal point of view here.
 
  • #10


mheslep said:
Why is it not the "logical thing to do" to cut government spending, rather than raising taxes across the board? Then, if this creates particular problems for government, "then this will become evident and can be dealt with accordingly."
The basic assumption is that it's better to have the money and not need it, than to need the money and not have it.

Maybe there are some obviously frivolous expenditures that might be cut. After determining what those are, then the rest is open for argument. How long will that take? Wrt most expenditures, cutting government spending doesn't create problems for the government, it creates problems for the people depending on the funding.

I'm supposing that payments on the national debt will continue to increase, but even if they don't, then considering an increasing need for spending in the areas of defense, infrastructure, energy, state assistance, and normal inflation, then I'm assuming that the government's need for revenue, if it's to be a good government, will increase.

But, as your question suggests, one might start with a different set of assumptions and conclude that gross expenditures, and therefore taxes, can be decreased.

If it's the case that we simply can't trust Republicans and Democrats to spend wisely no matter what the resources at their disposal, then of course the less money we give them the better. It would then make sense to drastically cut taxes and limit the resources at the government's disposal as severely as possible. But it's not up to us. It's up to our elected representatives who are pretty much only Republicans and Democrats. Republicans say they want to limit spending and cut taxes, but historically both parties are big spenders. So what are we to believe?

Will the federal government need more money or less money to do what needs to be done as the future of the US unfolds? It's all pretty iffy, and I tend to fall back on the basic assumption as expressed in the first sentence of this post. But then there's that ever present threat of wasteful spending. Voters seem perpetually forced to choose between two unsatisfactory alternatives. Or, might concerned citizens try not voting for Republicans and Democrats, electing alternative candidates instead, and see how they do?
 
  • #11


ThomasT said:
The basic assumption is that it's better to have the money and not need it, than to need the money and not have it...
I make that assumption for taxpayers, not the government.
 
  • #12


mheslep said:
I make that assumption for taxpayers, not the government.

So in your opinion, it's better for the government to need money and not have it?
 
  • #13


Char. Limit said:
So in your opinion, it's better for the government to need money and not have it?
Yes, better the govt than the taxpayers and the private economy.
 
  • #14


The government needs revenue.

This.

Eliminating the cap on wages subject to social security taxes would not solve the general fund problems. In practice, the government borrows surplus revenue from the social security trust fund, so it would help, but ultimately the increased revenues would be offset by benefits payments. A change in the payroll tax structure wouldn't come close to eliminating the shortfall in social security, let alone the broader budget.

Further, in principle social security is a defined benefit and insurance plan, not a welfare or asset transfer program. Eliminating the wage tax cap without eliminating the wage benefit cap overtly changes the nature of the program.

In any case, I think the primary reason a change in the FICA tax structure isn't progressives' primary concern is that the problem is general funds and general revenues. The popular preception is that general government operations are and should be paid for by the income taxes, with payroll taxes reserved for the funding of the benefit and insurance programs. It just isn't good politics to advocate openly for using social security taxes to fund regular government expenses (whatever happens in practice).
 
  • #15
russ_watters said:
Ok, so let's assume for a minute I accept that all types of taxes should be treated equally when calculating the tax burden and progressive/regressive distribution. Now what? Liberals use the argument (by all means, correct me if I get this wrong) that since the tax code is not very progressive, the rich aren't paying their fair share and should be made to pay more. The only clear plan I've seen from most liberals - and most importantly, from Obama - is to let the Bush tax cuts expire for high wage earners while renewing them for lower wage earners. This perplexes me:

AFAIK, the federal income tax is the only piece of our entire tax code that has a heavily progressive structure. The primary culprit in making the code flat to regressive, particularly above $106K is the flat nature of our payroll tax and in particular the $106k cutoff for Social Security. So it seems illogical to me to not attack the problem directly. If the tax burden becomes regressive at high incomes and the primary culprit is the Social Security tax, shouldn't logic dictate that the fix should be to remove the $106k cap and even apply a progressive scale to the SS tax? Why are Democrats not [loudly, anyway] advocating this more direct approach to fixing the problem?

How can the Democrats address the problem when they offer up ridiculous (IMO) programs like the 2% reduction in employees contributions to Social Security?
http://www.ssa.gov/pubs/10003.html


Please note they didn't cut the matching tax portion - in a slow economy the small business owner still has to pony-up the normal amount.

IMO - the politicians need to keep their hands off Social Security - especially for political gain - this includes expanding disability benefits for things like bi-polar disorder. Further, I think eliminating the cap is a good idea (IF) either the maximum benefits increase (it could be at a slower rate) or the percentage decreases above the current cap - perhaps down to 1% at $1Million and beyond?
 
  • #16
WhoWee said:
How can the Democrats address the problem when they offer up ridiculous (IMO) programs like the 2% reduction in employees contributions to Social Security?
http://www.ssa.gov/pubs/10003.html

It's interesting to see you on-record as calling a tax cut "ridiculous."
 
  • #17


Jack21222 said:
It's interesting to see you on-record as calling a tax cut "ridiculous."

In this case it is ridiculous - Social Security is scheduled to run out of money in the not-too-distant future and the President cuts it's current year funding by 16% (IMO) to gain political favor with voters. I'm also not in favor of the $40+ Billion in tax credits provided to GM after the bailout or the tax incentives for ethanol production. I'm glad to see it's being re-considered.
http://articles.latimes.com/2011/jun/16/nation/la-na-senate-ethanol-20110617
 
  • #18


WhoWee said:
In this case it is ridiculous - Social Security is scheduled to run out of money in the not-too-distant future and the President cuts it's current year funding by 16% (IMO) to gain political favor with voters. I'm also not in favor of the $40+ Billion in tax credits provided to GM after the bailout or the tax incentives for ethanol production. I'm glad to see it's being re-considered.
http://articles.latimes.com/2011/jun/16/nation/la-na-senate-ethanol-20110617

I think opposition to Social Security is ideological instead of economical. 2036 is a pretty distant projection to make for the break even point. How reliable is such a projection?
 
  • #19


SixNein said:
I think opposition to Social Security is ideological instead of economical. 2036 is a pretty distant projection to make for the break even point. How reliable is such a projection?

In what year do you plan to retire? Are you confident funds will be available for you?
 
  • #20


WhoWee said:
In what year do you plan to retire? Are you confident funds will be available for you?

How do I know if I will even live to see retirement? Life is uncertain. There are many actions and market conditions that could change the fate of social security in the long term.
 
  • #21


SixNein said:
How do I know if I will even live to see retirement? Life is uncertain. There are many actions and market conditions that could change the fate of social security in the long term.

I suppose the same could be said about completing you education - who knows if you'll be able to find a job in a given field - who knows how long you'll need to work - could die tomorrow?
 
  • #22


WhoWee said:
I suppose the same could be said about completing you education - who knows if you'll be able to find a job in a given field - who knows how long you'll need to work - could die tomorrow?

And a lot of people talk themselves out of an education using such reasoning. My point being that uncertainty should not stop one from investing in SSI.
 

Related to Stipulated: Payroll Taxes are Normal Taxes Now what?

1. What are stipulated payroll taxes?

Stipulated payroll taxes are taxes that are required to be paid by both employers and employees on wages and salaries. These taxes include Medicare, Social Security, and federal income taxes.

2. Are stipulated payroll taxes considered normal taxes?

Yes, stipulated payroll taxes are considered normal taxes as they are required to be paid by law and play a significant role in funding government programs and services.

3. How do stipulated payroll taxes differ from other types of taxes?

Stipulated payroll taxes are unique in that they are specific to wages and salaries, while other types of taxes such as sales tax or property tax may apply to different types of income or possessions.

4. What is the purpose of stipulated payroll taxes?

The purpose of stipulated payroll taxes is to fund government programs such as Social Security and Medicare, which provide benefits to individuals in retirement or with certain disabilities.

5. How are stipulated payroll taxes calculated and paid?

Stipulated payroll taxes are calculated based on a percentage of an employee's wages and are paid through regular deductions from a paycheck. Employers are responsible for withholding and submitting these taxes to the government on behalf of their employees.

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