What Are Payroll Tax Supported Programs to You?

[mheslep]

... I am asking if the SS program promotes the general welfare. If not, then it should be abolished as unconstitutional. If it does, then perhaps it should be considered a tax. I didn't have a point, I merely asked a question.

That debate, limited-enumerated powers govt vs general welfare, has been ongoing for two centuries. The debate was originally between Madison and Hamilton, with Madison's enumerated powers view holding sway more or less up until the Supreme Court cases of the New Deal era when Hamilton's view finally won, at least for now, under court packing threats by FDR. I don't think we'll resolve the issue in this thread.

 

[BobG]

You are not addressing the point of the thread. The point of this thread is to discuss the implications of including the payroll taxes. I'm trying to find out if you (and others) have thought through what it means to include them. For all the discussion of the issue, I've never seen anyone who wants to include them discuss the implications, which leads me to believe that it's not a thought-through opinion.

Please! Can anyone deal with the implications of what it means for the programs paid for by the payroll tax?

What it means is to confront reality.

The problem with the math of Social Security is something most people have been hearing their entire working life. While it's fun for members of the AARP (and anyone else getting remotely close to retirement age) to claim that the government has to live up to the promises they made when they created Social Security, I wonder how many have spent their working years really believing those promises would be kept.

A pension plan that you're contributing money to means that money is being invested, saved, etc, and that it's there the entire time it's being accumulated. When the money you're 'investing' is actually being used to support the generation that retired before you, then that sounds like a tax, regardless of the words that were used to sell that tax.

To be honest, the only reason there's any possibility of Social Security fulfilling the promises it made to the baby boom generation is that there's a whole bunch of us and we'll elect Congressmen that care more about making sure we get our money than things that will happen to the country after we're dead. And that still doesn't sound like your traditional pension plan.

 

[Jack21222]

I think payroll taxes should be included because it is actual money coming out of the pockets of the people who pay them. If somebody makes 25,000 in a year, and 2,000 comes out of their paycheck due to payroll taxes, that is fairly significant. It would be perverse to point a finger at this person and say "this person doesn't pay federal income taxes!" as if they're some kind of freeloader, when they felt 2000 dollars come out of their pockets that year. It's a tax on their income, by the federal government, based on a percentage of their income... sounds like an income tax to me, and it feels like an income tax when it comes out of the check.

The fact that it's earmarked for a specific benefit instead of going to the general fund seems to be a needless distinction.

This isn't directly related to this thread, but I feel it's close enough to be worth a mention. If people want to get angry that the federal income tax is too progressive, and that the other 50% should "pay something," consider this. Even at a lower percentage of income, the day-to-day impact on the life of a poor person of taxes can often be greater than a higher tax on a rich person. Even if we taxed every dollar of somebody who makes 1,000,000 per year at 90%, they'd still clear 100,000 per year. If somebody here wants to say a person cannot survive on clearing 100k per year, I'd like to hear it.

Contrast that with somebody who makes 15,000 per year. At that amount, a person will be barely struggling to make ends meet, and is probably risking homelessness at any time. Taxing them at a mere 2% per year would take 300 dollars away from them. That could be the difference between eating and not eating for 2 months. I'd argue that in this scenario, the person making 15,000 per year is being taxed much more harshly than the person making 1,000,000 per year, despite one being 2% and the other being 90%

 

[WhoWee]

I think payroll taxes should be included because it is actual money coming out of the pockets of the people who pay them. If somebody makes 25,000 in a year, and 2,000 comes out of their paycheck due to payroll taxes, that is fairly significant. It would be perverse to point a finger at this person and say "this person doesn't pay federal income taxes!" as if they're some kind of freeloader, when they felt 2000 dollars come out of their pockets that year. It's a tax on their income, by the federal government, based on a percentage of their income... sounds like an income tax to me, and it feels like an income tax when it comes out of the check.

The fact that it's earmarked for a specific benefit instead of going to the general fund seems to be a needless distinction.

This isn't directly related to this thread, but I feel it's close enough to be worth a mention. If people want to get angry that the federal income tax is too progressive, and that the other 50% should "pay something," consider this. Even at a lower percentage of income, the day-to-day impact on the life of a poor person of taxes can often be greater than a higher tax on a rich person. Even if we taxed every dollar of somebody who makes 1,000,000 per year at 90%, they'd still clear 100,000 per year. If somebody here wants to say a person cannot survive on clearing 100k per year, I'd like to hear it.

Contrast that with somebody who makes 15,000 per year. At that amount, a person will be barely struggling to make ends meet, and is probably risking homelessness at any time. Taxing them at a mere 2% per year would take 300 dollars away from them. That could be the difference between eating and not eating for 2 months. I'd argue that in this scenario, the person making 15,000 per year is being taxed much more harshly than the person making 1,000,000 per year, despite one being 2% and the other being 90%

If the person making $25,000 and has $2,000 in payroll deductions receives a $5,000 tax "refund" - they didn't pay any taxes.

As for your other example - the $1,000,000 earner - is it a small business owner that risked everything to create this income and hired other people (also paid their matching taxes and insurances)?

 

[Jack21222]

If the person making $25,000 and has $2,000 in payroll deductions receives a $5,000 tax "refund" - they didn't pay any taxes.

As for your other example - the $1,000,000 earner - is it a small business owner that risked everything to create this income and hired other people (also paid their matching taxes and insurances)?

Don't be so thick. If a business owner makes a million dollars a year in salary, it's not a small business.

 

[WhoWee]

Don't be so thick. If a business owner makes a million dollars a year in salary, it's not a small business.

No need to be rude. From the Small Business Administration website - my bold.

http://www.sba.gov/content/cdc504-loan-program
"To be eligible for a CDC/504 loan, your business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, a business qualifies as small if it does not have a tangible net worth in excess of $7.5 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate".

 

[WhoWee]

Here's more information on size standards for "small business".

http://www.smallbusinessnotes.com/s...can-industry-classification-system-codes.html

 

[Jack21222]

No need to be rude. From the Small Business Administration website - my bold.

http://www.sba.gov/content/cdc504-loan-program
"To be eligible for a CDC/504 loan, your business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, a business qualifies as small if it does not have a tangible net worth in excess of $7.5 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate".

Wow, you seriously can't tell the difference between a business's net income and an owner's annual salary. Plus, even if it IS a "small business owner" who employs people and yada yada yada like you said, could you please explain to me how that would have any relevance at all on the point I made?

 

[BobG]

There is a slight problem mixing small businesses and individuals.

For one thing, a small business can have more than one owner. For another, the business could suffer a net loss while the person that started and runs the business still collects a salary from the business. Or the business could break even while the person running the business collects a small salary, but uses the car, boat, etc. that the company bought primarily to entertain clients.

They're not necessarily the same thing, but they could be.

So the question is valid. But the answer could be that the guy he's talking about is a small business owner that runs a small car wash that employs people that don't do a whole lot and the business loses money, but the owner doesn't care because the car wash is making a profit on paper since it's really just a front to launder the money he makes manufacturing meth. (I really have watched too many episodes of Breaking Bad.)

 

[WhoWee]

Wow, you seriously can't tell the difference between a business's net income and an owner's annual salary. Plus, even if it IS a "small business owner" who employs people and yada yada yada like you said, could you please explain to me how that would have any relevance at all on the point I made?

Correct me if I misunderstand your point - that is the owner of a small business that earns (from my example) $2,500,000 per year and the owner takes a $1,000,000 paycheck after servicing debt and paying all other obligations - (you say) only deserves to keep $100,000 - 10% of their income?

 

[WhoWee]

There is a slight problem mixing small businesses and individuals.

For one thing, a small business can have more than one owner. For another, the business could suffer a net loss while the person that started and runs the business still collects a salary from the business. Or the business could break even while the person running the business collects a small salary, but uses the car, boat, etc. that the company bought primarily to entertain clients.

They're not necessarily the same thing, but they could be.

So the question is valid. But the answer could be that the small business owner runs a small car wash that employs people that don't do a whole lot and the business loses money, but the owner doesn't care because the car wash is really just a front to launder the money he makes manufacturing meth. (I really have watched too many episodes of Breaking Bad.)

That's fine Bob - let's make an example of a commission only salesman that earns $1,000,000 for the year (10% of $10Million in revenues created). How many jobs did the salesman save or create for that business - why does he only deserve to keep 10% of his earnings?

 

[BobG]

That's fine Bob - let's make an example of a commission only salesman that earns $1,000,000 for the year (10% of $10Million in revenues created). How many jobs did the salesman save or create for that business - why does he only deserve to keep 10% of his earnings?

Now that's a better example. Especially when sales can vary a lot from year to year and the salesman doesn't have ability to flatten out his income the way a business owner might (the owner investing money into the business in the good times and laying people off to cut costs in the bad times).

 

[ThomasT]

I didn't clearly address your OP in my first post, so here goes:

3. The implication of #2 is vast. Today, Social Security and Medicare are fiercely lobbied for and defended by older people. We'll likely see some fierce defense in this thread. The basic argument against massive restructuring (favored by many younger people) is 'I paid in, I should get that money out'. But oops, problem: that logic is only valid if you consider SS and unemployment as insurance/investment programs tied to what you paid in. So this is the key thesis: If you want SS and unemployment to be considered ordinary taxes, you must then also be willing to divorce the benefits from the pay-in. Logic demands that you can't have it both ways. But of course, that logic is not acceptable to many people on either side of the aisle and support for the programs would almost certainly collapse if that happened. So to say the thesis again from the other direction: If you want to consider SS and unemployment to be pay-out based on what you pay-in investment/insurance programs, you logically cannot consider them to be "regular" taxes.

I agree with this, and I think that what needs to be done is to stop considering SS as a "pay-out based on what you pay-in investment/insurance program". However it won't be completely divorced from the pay-in because a person would have to have paid in a certain minimum amount, as well as pass a means test, in order to qualify for what I think should become a subsistence level flat payment. That is, consider the SS tax as a tax like any other tax, and treat SS as a welfare program. Elderly poor who don't qualify for SS (who've paid-in insufficiently) would qualify for other welfare programs to help them get by and keep them off the streets.

The argument for continuing SS as a sort of welfare program is that it will be cheaper than the current system, and it promotes the general welfare. But the argument that "I paid in, I should get that money out" will no longer hold. The argument for welfare programs in general is that they promote the general welfare by elevating the lowest standard of living, and they benefit the real economy.

The percentage of people who would not qualify for regular SS payments with a means test program is an open question, the answer to which depends on where the 'subsistence level' line is drawn, and it's of concern primarily because I suppose that lots of these people will be opposed to any such change and will lobby their representatives accordingly.

 

[Jimmy Snyder]

The percentage of people who would not qualify for regular SS payments with a means test program is an open question, the answer to which depends on where the 'subsistence level' line is drawn, and it's of concern primarily because I suppose that lots of these people will be opposed to any such change and will lobby their representatives accordingly.

If I pay in and don't get out, then I will certainly consider it a tax, who wouldn't? None the less, I expect some kind of means test will have to be imposed as well as a delay in the retirement age. A problem with the means test is that I have been contributing to my 401K. If that money is considered 'means', then I was robbed.

 

[ThomasT]

If I pay in and don't get out, then I will certainly consider it a tax, who wouldn't? None the less, I expect some kind of means test will have to be imposed as well as a delay in the retirement age. A problem with the means test is that I have been contributing to my 401K. If that money is considered 'means', then I was robbed.

With a means test, and raising the SS tax, and removing the cap on SS taxable income, then it might not be necessary to delay the retirement age. Also, my guess is that the percentage of people able to work who are actually needed to work will decrease, and in that scenario there might even be a push for earlier rather than later retirements.

The underground economy will continue to expand as a large percentage of poor and unskilled immigrants continue to enter the US. So will the number of documented workers, though I suspect that the rate of expansion of the real economy will continually decrease. Anyway, with an increase in SS taxes and removal of the cap, then the SS retirement/welfare resources should be sufficient.

How will you have been robbed if your 401K is considered means? And why wouldn't that money be considered means?

 

[Jimmy Snyder]

How will you have been robbed if your 401K is considered means? And why wouldn't that money be considered means?

My neighbor and I make a strange pair. We always earned exactly the same amount every year. The only difference is that he lived it up spending every dime while I lived like a monk and saved up in my 401k. Now we are retiring. He with a SS pension, and me with none. I was robbed.

 

[russ_watters]

If our elected officials would've left these programs alone - not tried to expand them beyond their original scope or steal their funds for other spending programs (an insurance person would go to prison for "borrowing" from an annuity) we would not be having this discussion. You have described these programs correctly. They should not be counted as taxes - if anything a deferred benefit.

When you pay a tax - there is no implicit or explicit guarantee that you will have a future benefit of any kind. Your taxes might be used to house, feed, educate, and provide medicine to people who sit home all day and watch television because they have bi-polar symptoms or maybe helping community organizers register people to vote or to assist poor people to seek loans or maybe even to help stimulate the economy of Egypt or to study shrimp on a treadmill or to fund an artist who specializes in working with combinations of religious items and human waste - IMO. [emphasis added]

Yes, you've hit the nail on the head. Heck, we even get an annual statement, similar to our 401k, that says how much money is ours. And as you alluded to, it goes into a trust fund...the fact that the trust fund can be raided to support the general fund doesn't change the intent of the program, it just means we're stealing from and damaging the program (see: pension funds...).

The reason this is so important is that right now there is still an active fight over government healthcare. Healthcare is currently paid for out of pocket and out of pay by individuals and companies at a rate that is not tied to one's income. If the government takes it over and structures it like Medicare (for example), healthcare costs for the rich go way up and healthcare costs for the poor go way down. Despite this new redistribution of wealth from rich to poor, Democrats will see the flat nature of the tax and argue that our tax burden distribution took a step in the wrong direction! That's the flaw and the reason why I started this thread.

 

[russ_watters]

As for the point that I might actually have to make, it might be clearer if I referred to the phrase in the Constitution that seems to negate the rest of the document: "Promote the general welfare". I am asking if the SS program promotes the general welfare. If not, then it should be abolished as unconstitutional. If it does, then perhaps it should be considered a tax.

I know it's a tax - it says so right there on my paystub. That's not the issue. The issue is whether all taxes should be lumped together in calculating one's "tax burden" (and the resulting progressive/regressive nature of the tax structure). How to calculate if taxes are progressive or regressive depends greatly on what you do with the benefits part:

-Clearly, if you get a cash payout from the government (SS, unemployment, food stamps, etc.), that should count against your tax burden, right? At the very least, the information forwarded to the public (that '47% don't pay federal income taxes' stat, for example) has the benefits subtracted out.
-Clearly, there at least must be a flaw in the calculation of subtracting the benefits from the taxes (which is how some people end up negative) if the benefits are deferred and thus not counted, right?

 

[Jack21222]

WhoWee:

Never once in any of my posts have I ever said the millionaire "deserves" only 10% of his or her income. I would really appreciate it if you'd actually read what I wrote as opposed to making up things you wish I had said.

 

[russ_watters]

I think payroll taxes should be included because it is actual money coming out of the pockets of the people who pay them. If somebody makes 25,000 in a year, and 2,000 comes out of their paycheck due to payroll taxes, that is fairly significant. It would be perverse to point a finger at this person and say "this person doesn't pay federal income taxes!" as if they're some kind of freeloader, when they felt 2000 dollars come out of their pockets that year. It's a tax on their income, by the federal government, based on a percentage of their income... sounds like an income tax to me, and it feels like an income tax when it comes out of the check.

]b]The fact that it's earmarked for a specific benefit instead of going to the general fund seems to be a needless distinction.[/b] [emphasis added]

It's a little more specific than that: it's [supposed to be] earmarked for the person who paid it. Does that change it any for you? I have never once heard anyone complain that they pay more into their 401k than their neighbor at work, while paying the same for health insurance. Have you?

 

[russ_watters]

What it means is to confront reality.

The problem with the math of Social Security is something most people have been hearing their entire working life. While it's fun for members of the AARP (and anyone else getting remotely close to retirement age) to claim that the government has to live up to the promises they made when they created Social Security, I wonder how many have spent their working years really believing those promises would be kept.

A pension plan that you're contributing money to means that money is being invested, saved, etc, and that it's there the entire time it's being accumulated. When the money you're 'investing' is actually being used to support the generation that retired before you, then that sounds like a tax, regardless of the words that were used to sell that tax.

To be honest, the only reason there's any possibility of Social Security fulfilling the promises it made to the baby boom generation is that there's a whole bunch of us and we'll elect Congressmen that care more about making sure we get our money than things that will happen to the country after we're dead. And that still doesn't sound like your traditional pension plan.

Yes, Bob, thank you. That's the point I'm driving at. It is my perception that people are unwilling to confront the realities regarding SS. It irritates me plenty when I see in this forum people saying 'we can't cut SS, that's my money - I paid in my whole life!' That's the other side of the coin to this thread and '...but we still should consider this when deciding of our tax rates are progressive enough' is where I drew the line in the sand. People who favor SS and/or a more progressive tax structure almost never look at the two sides of the issue at the same time.

 

[russ_watters]

I didn't clearly address your OP in my first post, so here goes:

I agree with this, and I think that what needs to be done is to stop considering SS as a "pay-out based on what you pay-in investment/insurance program". However it won't be completely divorced from the pay-in because a person would have to have paid in a certain minimum amount, as well as pass a means test, in order to qualify for what I think should become a subsistence level flat payment. That is, consider the SS tax as a tax like any other tax, and treat SS as a welfare program.

Ultimately, we may end up with that, but I fear that older people are going to suck the program dry and drive the country into the ground - to Greece style bankruptcy - before such restructuring happens.

What that blow-up of SS would mean for the future tax structure, I'm not sure, but if it turns into a subsistence-level welfare program, I would assume the program (and of course the total taxes collected) would be massively reduced (as you said later).

 

[russ_watters]

If I pay in and don't get out, then I will certainly consider it a tax, who wouldn't? None the less, I expect some kind of means test will have to be imposed as well as a delay in the retirement age. A problem with the means test is that I have been contributing to my 401K. If that money is considered 'means', then I was robbed.

The money you pay into the 401k is your money in your 401k account. Certainly, if someone raids that, you were robbed. But SS funding is just a tax that can be used for whatever the government wants and shouldn't be tied to what you paid in...right?!

 

[ThomasT]

My neighbor and I make a strange pair. We always earned exactly the same amount every year. The only difference is that he lived it up spending every dime while I lived like a monk and saved up in my 401k. Now we are retiring. He with a SS pension, and me with none. I was robbed.

Isn't your 401K money significantly more than what you get from SS? So, won't you enjoy a more comfortable retirement than your neighbor? Anyway, the way things are now, don't you get both? You haven't been robbed yet, have you?

 

[ThomasT]

Ultimately, we may end up with that, but I fear that older people are going to suck the program dry and drive the country into the ground - to Greece style bankruptcy - before such restructuring happens.

Considering Congress's record, your fears are well founded. It will be interesting to see what actually transpires. I hope they don't let things slide too far. The solutions are there. It just takes the will to implement them.

 

[Jack21222]

It's a little more specific than that: it's [supposed to be] earmarked for the person who paid it. Does that change it any for you? I have never once heard anyone complain that they pay more into their 401k than their neighbor at work, while paying the same for health insurance. Have you?

No, it doesn't change anything for me, because social security has very little in common with a 401k. A 401k is MY money, and I can have access to it whenever I'd like. Sure, there's a tax penalty, but if I'm unable to afford food, or I'm late on my mortgage, or my gas and electric is about to be shut off, I can pull money out of the 401k. Additionally, the 401k is voluntary, and if contributing to the 401k would cause me to go without food for a week, I could cancel my contributions until my finances improve.

With social security, money gets taken out whether I want it to be or not, and whether I can afford it or not. I have no access to my money at all, and whether I actually see my money is entirely dependent on the whims of the government. They could easily push the age of retirement back beyond my life expectancy, or reduce the monthly payments, or cancel the whole program altogether. That cannot happen with a 401k, I can always get my money out.

 

[ThomasT]

What that blow-up of SS would mean for the future tax structure, I'm not sure, but if it turns into a subsistence-level welfare program, I would assume the program (and of course the total taxes collected) would be massively reduced (as you said later).

To me it makes sense to increase the SS tax by a few percentage points, while at the same time reducing the SS program by making it a subsistence level flat payout to means tested qualifiers. Even with wise spending, the government is going to need increasingly more revenue to deal with future problems other than SS and healthcare.

 

[Jimmy Snyder]

I know it's a tax - it says so right there on my paystub. That's not the issue.

Sorry, I thought it was the issue. It was in the first sentence in the OP. "what taxes to include in an accounting of peoples' tax burden". If it was already known from the start that SS taxes are taxes, then what does it mean to discuss whether or not to include them?

 

[WhoWee]

WhoWee:

Never once in any of my posts have I ever said the millionaire "deserves" only 10% of his or her income. I would really appreciate it if you'd actually read what I wrote as opposed to making up things you wish I had said.

You are correct Jack - you didn't use the word "deserve" - but as Russ stressed in the OP - your meaning was clear.
"Even if we taxed every dollar of somebody who makes 1,000,000 per year at 90%, they'd still clear 100,000 per year. If somebody here wants to say a person cannot survive on clearing 100k per year, I'd like to hear it. "

 

[Jack21222]

You are correct Jack - you didn't use the word "deserve" - but as Russ stressed in the OP - your meaning was clear.
"Even if we taxed every dollar of somebody who makes 1,000,000 per year at 90%, they'd still clear 100,000 per year. If somebody here wants to say a person cannot survive on clearing 100k per year, I'd like to hear it. "

I agree, my meaning was clear, but you still don't get it.

I posed an absurd situation in which somebody making 1,000,000 per year was taxed at 90% for all of it. I repeat, that is an absurd situation. It would be horribly unfair, and I would never support such a heavy tax.

Have I made that clear enough?

Then, I posed a more plausible situation, where a person making 15k per year is taxed at 2% on all of it. I'm talking net, not gross, by the way. This takes into consideration all taxes and all tax credits. He loses 2% per year.

It is my argument that the person being taxed at 2% in this scenario is being taxed more harshly than the person being taxed at 90%, based on the impact it has on their ability to live.

Both people are being taxed harshly in this situation. Neither situation is fair in my eyes.

Am I still being clear? I never once advocated that taxing millionaires at 90% is a good idea. It's a terrible idea, in fact. I never said they only "deserve" only 10%. This comes entirely from your imagination. Again, I ask you to read what I actually wrote instead of what you wish I had wrote. Setting up straw man arguments to tear down is a logical fallacy, and I'm sorry if you feel I'm being rude by pointing that out (that's usually your next step in these threads, is to accuse people of being rude for pointing out your mistakes.)