March 03, 2005
EVERYONE'S GOING TO BE "RICH":
Social Security blues (Robert Novak, March 3, 2005, Townhall)
Sen. Lindsey Graham, a first-term Republican senator from South Carolina, has taken the lead in searching for a bill that would attract a few Democrats who are essential for passage. Three months ago, he proposed raising above $90,000 the amount of individual income subject to the Social Security payroll tax in order to pay "transition costs" for personal accounts. That brought down the conservative house on Graham for "negotiating with himself."Many things have happened since then. Bush said that raising the tax cap is on the table. Graham's package is a work in progress, including a cut in the payroll tax rate from the current 12.9 percent to 11.9 percent to accompany raising the cap above $90,000. He would also change the indexing for Social Security benefits to the inflation rate, replacing the much faster rising wages -- a 30 percent cut in benefits. All this will be necessary eventually to save the system without even adding personal accounts. For now, such personal pain would make possible the pleasure of using 4 percentage points of the payroll tax for personal accounts.
I find some Republicans who denounced Graham three months ago have moved closer to him. Indeed, some would reduce benefits more than he does in the upper income brackets. Others would establish a means test to end benefits for the rich. All this would establish a graduated Social Security system that might please some Democrats sufficiently to sell them on personal accounts.
This has always been the ace in the hole, though folks don't seem to grasp it: any system that combines personal accounts and means-testing effectively ends SS. Posted by Orrin Judd at March 3, 2005 12:00 AM
--Others would establish a means test to end benefits for the rich.--
So, in short, kiss goodbye either 5.95% or 11.9% of your lifetime salary because you saved and did your job to not be a burden on the public.
it's for the poor, you know.
Then I want a cut in personal taxes. I'm either going to have to average over 6% or 11% to make up for the loss????
Posted by: Sandy P at March 3, 2005 02:17 AMDid I write that correctly?
Posted by: Sandy P at March 3, 2005 02:19 AMSS is 6.2%. If you are self-employed it doubles to 12.4%. Given that I'm already paying 33% marginal fed rate, it means I'll be paying 45.4%, before state taxes, plus another 15% in MN, plus 7% sales taxes, plus property taxes (about 5%), for a total of 67.4%. It's actually higher because the fed partially blocks itemized deductions above a certain AGI (I'm paying taxes on my taxes.)
Basically it means I'm going to have to lay off employees and/or look at reorganizing as a Chapter C corp to get capital gains rates.
Posted by: Gideon at March 3, 2005 06:07 AMTax reform should be next on the (admittedly large) plate.
Posted by: Bruce Cleaver at March 3, 2005 06:40 AMMeans testing makes it harder to privatize, since private accounts wouldn't be means tested. I support Graham's plan: (1) inflation-indexing instead of wage-indexing is key, not only for solvency but for fairness too so that someone who works ten years doesn't get the same benefits as someone who works forty years (a pattern that would discourage early retirees from adopting private accounts). (2) The trade of lower tax rates for lower deductions (in this case, the deduction of all income above $90k from the payroll tax) is good economics, it leads to faster growth and better decision-making. It also lets the GOP start positioning itself as a friend of the poor, helping to cement GOP dominance.
The other thing I would do is modify the SS trust fund so that it keeps 20 years worth of benefits for everyone in the system in inflation-indexed zero-coupon treasuries. That way, the government's accounting becomes honest, there's no longer any so-called "transition costs" to privatizing, and you can even tell people "Here's what the government has side aside for you in the SS trust fund right now" to help them think there's already a personal account for them, then the debate is only about taking ownership of their assets.
pj:
Yes, you'd just have to count all accounts as means at retirement and pretty few people would qualify for benefits anymore. Gutting popular support for the program as well.
Posted by: oj at March 3, 2005 08:24 AMgideon,
Is it too personal to ask how much you make? I earn about $90k a year but after putting $14k in my 401k, deducting my mortgage interest and property taxes (and, beginning this year, I get to deduct my sales taxes)and paying my share of my medical insurance before taxes, my federal income tax is less than 17% of my total income, even though I am in a much higher marginal rate. WA has no income tax, but we do have an 8.9% sales tax on non-food purchases. Overall I must pay about 33%-35% of my income in taxes. This percentage certainly must increase as income increases, but your taxes seem extremely high.
"I'm going to have to lay off employees"
If you're running your own company, I suggest you see a tax lawyer pronto.
Posted by: h-man at March 3, 2005 02:41 PM