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Old 11-04-2010, 05:48 PM   #61
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I would except that, however, 'right' has been used for everything from voting to health care! Only one of those, IMHO, is a right. Most entitlements are held as rights now a days.
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Old 11-04-2010, 06:22 PM   #62
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I think "right" is a much over used word. I wouldn't say that funding public schools, or roads, or cancer research or anything else creates a new "right".
Rights are fundamental. Possession of personal property is a right. So, if the government is going to deny a person of their personal property (through taxation), it should be for a purpose we deem to be more fundamental than the right to own personal property. There are many specific duties for the federal government spelled out in the Constitution--but providing alms for the poor, a guaranteed retirement and providing medical care are not among them.
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Old 11-04-2010, 06:40 PM   #63
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Rights are fundamental. Possession of personal property is a right. So, if the government is going to deny a person of their personal property (through taxation), it should be for a purpose we deem to be more fundamental than the right to own personal property.
Exactly! Like taking people's homes and giving the land to a developer to never actually follow through on plans to build a Walmart or a basketball stadium. Profit for cronies, the most fundemental right.
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Old 11-04-2010, 07:47 PM   #64
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I am straying away from the topic, but can't help posting my opinion here on taxes.

Yes, the level of income inequality bothers me sometimes. I have nothing against people who get rich due to their talent or hard work, but we all know about outrageous CEO pays that are awarded to them from board of directors full of cronies, or Wall St bankers who got rich from selling CDOs. I hate to see those guys get rich while they ruin the economy for the rest of us.

Sadly, because it may be more difficult to stop all that illicit income, people try to "get back" at them by levying higher income taxes. That penalizes all high-wage earners alike, whether they have truly earned it or not. And then, all that money that should rightfully be spread among stock holders and company employees, it goes to the politicians to dish out as they see fit. Two wrongs do not make it right!
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Old 11-04-2010, 08:17 PM   #65
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Sadly, because it may be more difficult to stop all that illicit income, people try to "get back" at them by levying higher income taxes. That penalizes all high-wage earners alike, whether they have truly earned it or not. And then, all that money that should rightfully be spread among stock holders and company employees, it goes to the politicians to dish out as they see fit. Two wrongs do not make it right!
I dunno. This reads a lot like a rationalization to me. People have always envied people with more than they have, and viewed their success as "unfair" regardless of how they got it.
In this country, the only "illicit income" is income that is gained illegally. If society disapproves of a particular way of earning money, then we should do the straightforward thing and pass a law against it. Collective punishment isn't right. More importantly, it hurts society as a whole.

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Old 11-04-2010, 08:51 PM   #66
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I am straying away from the topic, but can't help posting my opinion here on taxes.

Yes, the level of income inequality bothers me sometimes. I have nothing against people who get rich due to their talent or hard work, but we all know about outrageous CEO pays that are awarded to them from board of directors full of cronies, or Wall St bankers who got rich from selling CDOs. I hate to see those guys get rich while they ruin the economy for the rest of us.

Sadly, because it may be more difficult to stop all that illicit income, people try to "get back" at them by levying higher income taxes. That penalizes all high-wage earners alike, whether they have truly earned it or not. And then, all that money that should rightfully be spread among stock holders and company employees, it goes to the politicians to dish out as they see fit. Two wrongs do not make it right!
One thing I always find curious is that people really get POed about CEO pay, but not other highly paid people in the country. Now obviously many CEO do in fact get sweetheart deals, turn out to be horrible managers etc. and deserve the criticism.

A while ago I started to look at professional athlete salaries. I am not 100% sure on this but I pretty sure that collective salary of NFL, NBA, and MLB players exceeds the collective salaries of the top five executives of each of the fortune 500 firms. It is comparable number of people (2500 vs <3,000 athletes) I'm not huge sports fan but I know that each year there are generally several superstars, signed to multiyear 10 or even 20+ million , that bat less than .250, throw as many interceptions as touchdowns, or don't produce as many points or rebounds or assist as they are supposed to.

You virtually never hear the general public bitch about how overpaid these guys are or the movie star, who get $20 million for making a crappy movie.
I can never figure this out. Even if you never go to a ball game, you are still paying the athletes salary in the form of higher prices for products like beer, soda, and cars which are heavily advertised at sporting events. Movie star salary result in higher ticket prices etc. and lower profits for media companies, which impacts us shareholders. So why are overpaid CEO vilified and others not?
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Old 11-04-2010, 09:04 PM   #67
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So why are overpaid CEO vilified and others not?
Well, we go to the movies once every 2 or 3 years, whether there is anything worthwhile or not. And I do not even watch sports game on TV, leave alone go to a stadium. Indirectly, I still pay for the outrageous incomes of actors and athletes, I am sure, as those are built-in to the other products that I have to buy. But if my countrymen want to give them lots of money, it is their right to do so.

If stock holders approve of CEO's pay, I guess I couldn't complain either. In contrast, the other highly-paid people incomes were directly "voted" on by their audience. Now, those bankers who made lots of money on CDOs, they should thank their lucky stars we no longer have the guillotine.

And speaking of the guillotine, do you know it was last used in France in 1977?
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Old 11-04-2010, 09:19 PM   #68
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Wow. I have a much simpler plan.

Step 1) The gov't provides a paygo plan with the same minimal benefit for everyone. Say, anybody over age __ gets $800 per month. The $800 is probably CPI indexed.

. . .
I don't see the advantages of complex mandatory savings schemes. "But what about the people who don't save?" Step 1 provides them a minimal income in their old age. That's all the rest of us should care about.
So, some preliminary back-of-the-envelope numbers with what you've proposed. Right now there's approx 3:1 ratio of SS tax payers:beneficiaries. If we stipulate an $800 monthly benefit, then each employee would have to pay $267 per month. The median US hourly wage (not mean) is $15.95 (2008 numbers), which equals $2550 per month. The SS tax would need to be 10.4% to make that work. The effective SS tax in the US now is 12.4% up to the income cap (that 12.4% is the real tax the worker pays without the "employer contribution" smokescreen), so we can see already that workers would gain a raise of 2%. It sounds small, but put into private accounts, that 2% would make a big difference in the ultimate ability of workers to afford to retire. Given recent zero % savings rates, 2% is a very good start.

Note that this is still "progressive", as higher-paid workers pay in more than lower-paid workers for the same promised benefit.

IMO, we can and should retain the "cap" on taxed income as a mater of fairness (since all individuals will get the same absolute benefit when they retire). The math to figure out where the cap should be is beyond me, since it would depend on the distribution of US earned income.

But, just for argument (and as "red meat" for the class envy fans) what would happen if we got rid of the cap on taxed income? This would allow a significant reduction in the tax rate needed to generate those $800 checks. The mean monthly income in the US (from wages alone, in 2008) is $3621. To get the needed $267/mo contribution to fund existing payments, the SS tax rate would need to be only 7.4%. For those earning less than the present SS cap, this represents a net increase in pay of 5%. If that amount is placed into private retirement accounts it would significantly improve the lot of many folks. This would also be a huge tax increase on many highly paid workers (those earning more than approx $179K would be net losers compared to the present higher-tax-but-with-a-$107K-cap system).

How could this be phased in? Use the $$ in the SS trust fund to make up any difference between the $800 checks and the "promised" SS amount for existing retirees and those retiring soon. Gradually reduce the promised payments for those coming later. As a reference for what might be required: The average SS check (Jan 2010) was $1,164. There won't be enough in the trust fund to carry this out very long, so we'd likely need to gradually transition from the present 12.4% rate to the 10.4% (or 7.4%) rate as obligations decline.

Two other things:
- The payer : payee ratio will gradually get worse over the coming decades. We'd have to adjust for that. Increase the age at which those $800/mo checks start?
- It's important to remember that the present SS taxes won't sustain the promised benefits. Comparing present taxes/present promised payments only works if we lop off 22% of the present promised payments to reflect the shortfall. After doing that math, the present average SS check today ($1,164) would be $908/mo. This "sustainable under the present system without further taxes" benefit level isn't far off from what you've proposed. The difference is all that extra income workers will be able to take home and save for their own use if we started reducing SS taxes now.
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Old 11-04-2010, 09:30 PM   #69
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I just don't want to see elderly people (those who are too old to work), starving, sick, and living outdoors where they are unprotected from the elements. I don't care if they were stupid when younger in life or not; this is simply inhumane.

Just jumped into this thread... so I am behind the times....

OK... but what do you suggest We can build some 'slum' housing to put them in... but I would not go over say 450 sq.ft. of space... that seems to be what you can get for $2500 per month at a senior citizen home...

Why should someone who did not plan for their old age get any better than what my mom probably will be in later in life?
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Old 11-04-2010, 09:33 PM   #70
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Should the good folks of New Jersey be taxed to help the economies of Texas....? Alabama....? Alaska...? Are those residents there socialists?

This is an absurd argument ...I know.

Being that NJ gets more back in federal funds than it sends in.... and Texas does not.... I think the statement should be reversed...


(note: have not check the numbers in years, so it might be different today)..
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Old 11-05-2010, 01:59 AM   #71
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Just had a little time so mostly skimmed these posts, but...

The problem I see with the Original Post is that it jumped to 4 possible solutions before it even defined the problem and/or goals. It is common for people to skip that definition step, but you can't even know that you came up with a "solution" without knowing what it was you were trying to solve. I've seen it time and time again in real life and it usually derails from the real solution.

W2R touched on it in post 7 (IIRC) as did a few others. Are we defining "retirement security for all" as some basic level of food, shelter and health care? Or are we talking about retiring in the style that we may have enjoyed during our careers, or something close, regardless of personal savings? Is "retirement security" the same for all, or different for some? Those were off the top of my head, there are probably a bunch of other valid definitions to consider.

-ERD50
That is a good point. As I said in the original post, it was late at night and I didn't have time to flesh it out. Unfortunately, it's late at night again! And since Thursday isn't my night to stay up late either, the threads on "What is Retirement Security?" and "Should there be Retirement Security for All?" will have to wait until tomorrow—unless someone else starts them before I get back.
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Old 11-05-2010, 07:25 AM   #72
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Being that NJ gets more back in federal funds than it sends in.... and Texas does not.... I think the statement should be reversed...


(note: have not check the numbers in years, so it might be different today)..
Its a tad bit different these days. The list I saw earlier this year had NJ as #49th on what we get vs. what we give to the feds.
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Old 11-05-2010, 09:26 AM   #73
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Its a tad bit different these days. The list I saw earlier this year had NJ as #49th on what we get vs. what we give to the feds.


OUCH.... I just looked it up and you are now 50!!!


I take back my comment...


How did New Mexico become #1 Probably should be another thread...

The Tax Foundation - Federal Taxes Paid vs. Federal Spending Received by State, 1981-2005
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Old 11-05-2010, 09:36 AM   #74
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I don't think your alternative would provide "retirement security for all". To my way of thinking, retirement security does not exist unless it's impossible to outlive your income. The only way I see that your suggestion could provide income for life is if the money were used to purchase an annuity, but annuity prices vary with interest rates at the time of purchase. I had occasion to look up the interest rates on Treasury bonds for another thread a short time ago, and found that rates today are only about half of what they were ten years ago. That means that someone retiring today would get a lower income from their pot of money than an otherwise identical retiree who left the workforce in 2000. They worked the same, earned the same, saved the same, and invested the same, but they are less secure than the retirees from 2000, because they have less income, and/or a lower proportion of their total income is impossible to outlive.

That doesn't sound like "security for all" to me.
My bold....

And this is the problem that I have with DB plans... things change over time... different earnings etc. etc....

We can use your same example and say the first guy had saved up his own money and bought an annuity that paid out X... and the second guy saved up his own money and when he retired he could only by an annuity that paid out .8X (or whatever)... should someone come in and pay the extra amount of cash right now so he can get up to X That is what you are suggesting...

To me, just because the savings are in a different kind of account does not mean we should ignore the realities of the market....


Now, what we could do is tell the first guy "well, you are making too much now compared with the current rates, so we are going to take some of your money and pay the second guy so you both are even"....

That does not sound fair either...

The risks of the markets are real.... someone has to bear them... that is one reason private companies dropped DB plans because they did not want to take on the risk... Now the employee has the full risk of the market..
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Old 11-05-2010, 09:38 AM   #75
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1. So, some preliminary back-of-the-envelope numbers .... 2% is a very good start.

2) IMO, we can and should retain the "cap" on taxed income as a mater of fairness ....

But, just for argument ....

3) How could this be phased in? .....

4) Two other things:
- The payer : payee ratio will gradually get worse over the coming decades. We'd have to adjust for that. Increase the age at which those $800/mo checks start?
- It's important to remember that the present SS taxes won't sustain the promised benefits. ....
1) My math gives similar results. Note that your numbers include disability and "young" survivors taxes and benefits. I was focusing on old age only.

2) I could go with the current payroll tax with cap, or with removing the cap, or with including investment income in the tax base, or with "general revenue" funding. I can make pro/con arguments for each. Your math helps with a reality check.

3) Paul Ryan's SS plan (and others) calls for "Progressive Indexing" of benefits, which moves the 32%/15% bendpoint down. It goes in this direction. I'd do more of that - introduce a 0% range, then move bendpoints down over time.

4) Yes, it's not really about freeing up a lot of current tax dollars as much as preventing tax increases in the future.
I consider raising the retirement age a "must do", not just for SS, but for any retirement scheme.
One technical opportunity is that current law indexes the initial SS benefit to wages not CPI. So if wages go up faster than CPI, real benefits grow. (Ryan is using this.) I was thinking my flat benefit would be CPI indexed. In my propostal, any decision to give retirees a share of productivity gains would require political action. Pure paygo funding would help people understand this.
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Old 11-05-2010, 09:46 AM   #76
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I think SS and Medicare are good base programs to ensure the elderly (retirees) have medical attention and a very basic income.

The best thing the govt could do is to simplify the convoluted tax code around personally directed tax-qualified saving plans. Get rid of 401k, IRA, etc. Create a single portable tax deferred and a single Roth type plan that is not tied to a company or organization. Let the person control it and put it wherever they want (like an IRA). But unlike and IRA... it should have maximum legal shielding (like a pension) and be consistent across all states (unlike IRAs).

The govt should direct our school systems (probably high school) to have mandatory classes in basic personal finance (including retirement issues and preparation). There should probably 1 class per year for the last 3 years. Ignorance is our greatest problem.

Should people be forced to save over and above SS? No! But they should be encouraged to do so... tax incentives are probably the best encouragement for Americans.
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Old 11-05-2010, 10:07 AM   #77
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1) My math gives similar results. Note that your numbers include disability and "young" survivors taxes and benefits. I was focusing on old age only.
Good point. So the taxes would actually be lower than the "wag" I did. Of course, to some extent these other beneficiaries might become "costs" to other government programs, but I think that puts the burden ("responsibility", whatever) where it belongs.

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2) I could go with the current payroll tax with cap, or with removing the cap, or with including investment income in the tax base, or with "general revenue" funding. I can make pro/con arguments for each. Your math helps with a reality check.
Yes, and that would be a big political fight. IMO, going with general revenue funding takes us in exactly the wrong direction (as it unleashes the "something for nothing" political forces at the zero% tax bracket).

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One technical opportunity is that current law indexes the initial SS benefit to wages not CPI. So if wages go up faster than CPI, real benefits grow. (Ryan is using this.) I was thinking my flat benefit would be CPI indexed. In my proposal, any decision to give retirees a share of productivity gains would require political action. Pure paygo funding would help people understand this.
Yes, and one mechanism for making this clear (CPI vs wage-based benefits) would be in how the program's growth was to be determined--supply-driven or demand driven,
-- Supply-driven: Predetermined (probably declining over the years, as noted previously) tax rates which would give a de facto wage-based program. SS checks to beneficiaries would vary each year based on the growth in wages: Divide the "pot" by the number of beneficiaries, everyone gets the same amount. From a political standpoint, this gives both wage-earners and SS recipients a stake in improving US productivity, which is a good thing.

or
-- Demand driven: Benefit check is adjusted for CPI. The SS tax rate would be adjusted annually to bring in enough money to cover the checks. From a political standpoint, this separates retirees from concerns about US productivity (their check will be the same regardless of what workers earn), which may not be optimum. It also insulates retirees somewhat from the effects of inflation, which is good for them but maybe not good for society. They vote, and I want them voting for policies that are going to result in good monetary policies for everyone.

Another major question: What happens to the money that is now going to SS taxes and which would be "freed up" by the new lower SS tax rates? The libertarian, free-market, small government answer is to let the worker keep his money, investing it if he chooses. The big-government answer is to pump these funds into another government controlled annuity program that provides rising benefits based on higher input levels (and, coincidentally, produces a lot of tax revenue that can be spent immediately, just as the SS surplus was). Or, the law might require that the funds be put into individually-owned accounts invested in a selected universe of asset types, perhaps with asset allocations becoming more flexible with higher balances. This last option is unattractive for various reasons, but I think offers the best chance for avoiding a repeat of the American SS experience.

Politically viable? I think so. No one loses anything, and some gain a lot. Those at or near SS eligibility get their promised checks and a solid, actuarially sound system. Those farther out get a solid SS system (which surveys show most don't believe exists now) and (under the third option above) significant private accounts that will outstrip the promised (but undeliverable) promises of the present system.
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Old 11-05-2010, 10:19 AM   #78
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TP,
Just a guess but New Mexico has a fairly small population and several large military bases and other federal installations. I was surprised Virginia was not higher. My guess there, lots of gov. spending, but lots of wealth also.
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Old 11-05-2010, 11:14 AM   #79
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Yes, and one mechanism for making this clear (CPI vs wage-based benefits) would be in how the program's growth was to be determined--supply-driven or demand driven,


Another major question: What happens to the money that is now going to SS taxes and which would be "freed up" by the new lower SS tax rates? The libertarian,

Politically viable? I think so. No one loses anything, and some gain a lot. Those at or near SS eligibility get their promised checks and a solid, actuarially sound system. Those farther out get a solid SS system (which surveys show most don't believe exists now) and (under the third option above) significant private accounts that will outstrip the promised (but undeliverable) promises of the present system.
I agree with the advantages of your supply-driven option in the long run. I happen to like the "automatic stabilizer" function demand-driven (stable benefits) in the short run. I'm not sure if there is a clever way to get both.

If we could jump to this system on 1/1/11, then we would have tax dollars freed up and we could talk about what to do with them. If we transition into it, then it mostly just heads off the pressure for tax increases in the future. Maybe it could be structured to save 1-3% in taxes, but that's pretty small dollars on median wages.

As I mentioned in the first post, I take the libertarian view and say that once the current workers have guaranteed retirees a basic income, people should be free to save, invest, and withdraw however they choose.

Politically, I'd like the chance to convince young people that paygo is a solid long-term system, and this version is economically viable indefinitely. It seems that many would consider that better than what they expect today. One problem is that so many people believe there is some sort of magic in mandatory private accounts. I think that is just wishful thinking, but pleasant fantasies are hard to dislodge.
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Old 11-05-2010, 03:10 PM   #80
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One problem is that so many people believe there is some sort of magic in mandatory private accounts. I think that is just wishful thinking, but pleasant fantasies are hard to dislodge.
Well, maybe not "magic", but . . .
I find this idea of "forced savings" to be very distasteful, but my support for it comes from an appraisal of the world as it is, not as I'd wish it to be. Factors:
- We know from our national experience with both IRAs and 401Ks that Americans are, at present, crappy savers. For whatever reason, they aren't saving enough to provide for their own later years, even if their later years include more years of working. There's plenty of incentive, and there's enough disposable income for XBoxes, $100/month cable TV, and new cars every 3 years, but in good times and bad most don't save enough to provide for their later needs.
- We know from the behavior of individual investors that many/most people are making investment decisions that are not in their long-term interest.
- When people fail in the US, those who have succeeded have to bail them out. The degree of wealth transfer in this regard will increase as there are more poor people voting to "soak the rich."
- A strong middle class is good for a democracy, and, conversely, democracies are dangerous places when the middle class declines. History is full of examples where a majority has freely elected radical populists, dictators who come to power promising law and order, and authoritarians who promised various brands of state theft of individual property. All these bad ends are a lot more likely if we've got a lot of poor people and fewer middle-class people. While the existence of a robust middle class will continue to require solid employment opportunities in manufacturing and services, there's no doubt that global pressure is already driving down wages across the board in the US. As I see it, the best hope for maintaining a strong American middle class is to turn many more people into investors. A world of new factories will require a lot of capital, and thousands of new companies around the world will provide a big opportunity for equity investors in the US, if they get on board. I want those Indonesian, Chinese, and Brazilian companies who are making products and undercutting American labor rates to be paying dividends to American middle-class investors.

A voter who is dependent on the government has a different outlook from a voter depending on his own investments for his security.

I don't believe these mandatory saving accounts are magic. I don't even much like the idea, except that it's the least bad alternative given what we know and where we are.
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