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Old 07-22-2016, 11:29 AM   #41
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if you look at that study on page 62, there is a huge disparity in life expectancy between the lowest and highest paid (for obvious reasons) - it may be more actuarially "fair" to base the FRA on income....still thinking about this
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social security proposal
Old 07-22-2016, 11:38 AM   #42
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social security proposal

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i think they are varying the fra based on the ame so it wouldn't be that bad since the ame is a career average - raising the cap only works if you don't count that in the benefit calculation which breaks one of the principles of social insurance

I guess my thought was that by the time you hit the 3rd bend point, the payer is already getting back a much smaller return on their SS "investment". Since SS would be keeping even more of a high earner's contribution, it'd help to offset additional longevity by that cohort. High earners would still receive benefits based on their contributions, so I don't think that'd violate the principles of SS.
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Old 07-22-2016, 11:41 AM   #43
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I guess my thought was that by the time you hit the 3rd bend point, the payer is already getting back a much smaller return on their SS "investment". Since SS would be keeping even more of a high earner's contribution, it'd help to offset additional longevity by that cohort. High earners would still receive benefits based on their contributions, so I don't think that'd violate the principles of SS.
correct it wouldn't - I don't have a problem with that at all although no one cares.....I'm just hoping to (eventually) get some of my money back
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Old 07-22-2016, 12:07 PM   #44
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"Fixing" SS seems so simple to me. (Of course, what do I know...)

Keep SS the same for those over 50.
Stop the deduction cap.
Work out the marginal tax rate for high income earners. 39.6% + 6.2*2 + 1.45*2 + 0.9%. I get 55.8%. Good job I quit working.
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Old 07-22-2016, 12:23 PM   #45
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Work out the marginal tax rate for high income earners. 39.6% + 6.2*2 + 1.45*2 + 0.9%. I get 55.8%. Good job I quit working.
[MOD EDIT]

For one thing, very few people are in the 39.6% tax bracket since it starts at $415k of TI for a single and $467k of TI for MFJ. Second, the employer pays part of the 6.2 and 1.45 so what the taxpayer pays is 48.15%, not 55.8% as you state.

[MOD EDIT] What marko proposed eliminating the cap would only change the 48.15% to 46.7% (or your 55.8% to 52.9%)... if in your mind that 1.45% (or 2.9%) causes you to cross over the line from working to not working, then so be it.

I was over the limit every year for the last half of my career but would not have minded at all if the cap had been eliminated if the result was to put the whole system on a more solid footing... not to mention then not having to hear prognosticators lament about the future problems with SS.
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Old 07-22-2016, 12:44 PM   #46
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[MOD EDIT]

For one thing, very few people are in the 39.6% tax bracket since it starts at $415k of TI for a single and $467k of TI for MFJ. Second, the employer pays part of the 6.2 and 1.45 so what the taxpayer pays is 48.15%, not 55.8% as you state.

[MOD EDIT]What marko proposed eliminating the cap would only change the 48.15% to 46.7% (or your 55.8% to 52.9%)... if in your mind that 1.45% (or 2.9%) causes you to cross over the line from working to not working, then so be it.

I was over the limit every year for the last half of my career but would not have minded at all if the cap had been eliminated if the result was to put the whole system on a more solid footing... not to mention then not having to hear prognosticators lament about the future problems with SS.
I don't think most people making over the TWB would mind a one-time increase (over CPI) to it for shoring up benefits - I mean moving it to $200K or $250K would have about the same impact as eliminating it I'm guessing - one of the problems when it is eliminated is that the value of non-qualified benefits get taxed on that entire chunk which kinda stinks if you have non-qualified plans
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Old 07-22-2016, 02:05 PM   #47
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[MOD EDIT]My point is that high income earners see a large increase in marginal rates. We know decisions are driven by marginal rates. It's a big deal. We would be increasing the marginal rate by 12.6% and I think that's a lot.

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For one thing, very few people are in the 39.6% tax bracket since it starts at $415k of TI for a single and $467k of TI for MFJ.
So my point is wrong because not a lot of people pay the rate? Well the 12.6% applies to other rates too. It's not an argument to say it doesn't matter because few people are affected.

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Second, the employer pays part of the 6.2 and 1.45 so what the taxpayer pays is 48.15%, not 55.8% as you state.
So it's not a tax because the government says that the paystub should look different as we pretend the employer pays the tax? We all know the employee pays the tax.

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[MOD EDIT]What marko proposed eliminating the cap would only change the 48.15% to 46.7% (or your 55.8% to 52.9%)... if in your mind that 1.45% (or 2.9%) causes you to cross over the line from working to not working, then so be it.
It would add 12.6% to the tax bracket. Pretending some of it isn't there won't change that.

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I was over the limit every year for the last half of my career but would not have minded at all if the cap had been eliminated if the result was to put the whole system on a more solid footing... not to mention then not having to hear prognosticators lament about the future problems with SS.
So now your saying that you don't mind paying it where your marginal rate likely might not be that large. After all you have said not many people pay those high rates. So nobody else can object or make decisions on this high rate because you blessed it in all your goodness.
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Old 07-22-2016, 02:21 PM   #48
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So now your saying that you don't mind paying it where your marginal rate likely might not be that large. After all you have said not many people pay those high rates. So nobody else can object or make decisions on this high rate because you blessed it in all your goodness.
(he's retired)
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Old 07-22-2016, 02:22 PM   #49
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I think the biggest issue with the proposal is that it would seem a proposal like this would hurt women even more. You already have the fact women get paid less and thus already get back less in SS on average, then you add to it that many women are the majority of the care givers in their family and thus leave work form time to time to either take care of aging parents or children. I think getting in 35 years is tough for many, 40 would be near impossible unless many other changes in our society were to take place (such as more affordable day care and senior care)..which also takes $$$.

Honestly I wouldn't mind a proposal like this if it helped to shore up the less fortunate (ie so say you haven't reached the 2nd bend point, each year you keep working would only add to your benefit..almost like a bonus for working all your life thus potentially making it more feasible for you to have a retirement where you weren't constantly desperate.)

Yes you have to take off the income cap to shore it up and maybe you close some loopholes (kind of like the one they did last year). Given the system was never set up for COLA in the first place, still wondering how that was factored into solvency.
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Old 07-22-2016, 02:27 PM   #50
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I think the biggest issue with the proposal is that it would seem a proposal like this would hurt women even more. You already have the fact women get paid less and thus already get back less in SS on average, then you add to it that many women are the majority of the care givers in their family and thus leave work form time to time to either take care of aging parents or children. I think getting in 35 years is tough for many, 40 would be near impossible unless many other changes in our society were to take place (such as more affordable day care and senior care)..which also takes $$$.

Honestly I wouldn't mind a proposal like this if it helped to shore up the less fortunate (ie so say you haven't reached the 2nd bend point, each year you keep working would only add to your benefit..almost like a bonus for working all your life thus potentially making it more feasible for you to have a retirement where you weren't constantly desperate.)

Yes you have to take off the income cap to shore it up and maybe you close some loopholes (kind of like the one they did last year). Given the system was never set up for COLA in the first place, still wondering how that was factored into solvency.
women definitely have several challenges in retirement (in and out of j*b market resulting in gaps in pension coverage, long life expectancy, spouses who make incorrect retirement elections or squander everything, the other stuff you mentioned, etc.)

however, if one pays less into SS, then one gets back more from SS than they otherwise would due to the way the bend points are set up; also since women live longer they will get paid more out of SS, ceteris paribus
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Old 07-22-2016, 03:33 PM   #51
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(he's retired)
Some people explain to me in great detail how generous they would be if they won the lottery. He was actually looking back to the past and saying how he wouldn't mind paying something he isn't going to pay.
I am also not working and so wouldn't pay it but I think I understand why those who would could change their ways dramatically.

My worry on the whole idea is that SS is already not a good plan if you look at it in terms of return on investment. Making it more progressive (hell for $100 in covered income after the last bend point you get less that a 4c increase in benefits) will make it a worse plan for those with more earnings. Investing my contributions in inflation protected securities (essentially) albeit with longevity insurance doesn't seem like a winning strategy. Few here invest like that.
The evidence is clear that savings rates have been depressed by SS so increasing the SS tax rate seems like a bad idea to me.
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Old 07-22-2016, 03:34 PM   #52
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Id still be curious if someone ran a study on a proposal I'd seen awhile back to fix SS in which they got rid of the spousal rules. ie. if your married 50% of your SS would get credited to your account, 50% to your spouses. Then everyone would have their own account, there would be no claiming against your spouses and no one would have to worry about how long you were married to someone else, that you can marry multiple times and then who collects what.. it seems to me it would not only be more fair, easier to manage, but would also potentially save a lot of money in SS payouts and administration.
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Old 07-22-2016, 03:41 PM   #53
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My worry on the whole idea is that SS is already not a good plan if you look at it in terms of return on investment. Making it more progressive (hell for $100 in covered income after the last bend point you get less that a 4c increase in benefits) will make it a worse plan for those with more earnings. Investing my contributions in inflation protected securities (essentially) albeit with longevity insurance doesn't seem like a winning strategy. Few here invest like that.
The evidence is clear that savings rates have been depressed by SS so increasing the SS tax rate seems like a bad idea to me.
if you die or become disabled it's a great ROI - plus people like my 88 year old father (who was a maximum earner his entire career) got a GREAT ROI (back when I calculated it 25 years ago when I was studying for one of the exams)

but yes, going forward, the ROI isn't that great for most of us but that's social insurance for ya

i'm not sure it would take that much of a one-time bump in the TWB to right the ship, maybe a few grand, maybe 10 or so... I'd have to look at the analysis

but it would be politically difficult, based on the points you made especially since private DB plans have fallen out of favor; we have a huge problem facing our country right now via a pending retirement crisis so feathering in the FRA based on income would be much easier, IMO
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Old 07-22-2016, 03:42 PM   #54
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Id still be curious if someone ran a study on a proposal I'd seen awhile back to fix SS in which they got rid of the spousal rules. ie. if your married 50% of your SS would get credited to your account, 50% to your spouses. Then everyone would have their own account, there would be no claiming against your spouses and no one would have to worry about how long you were married to someone else, that you can marry multiple times and then who collects what.. it seems to me it would not only be more fair, easier to manage, but would also potentially save a lot of money in SS payouts and administration.
probably not a bad idea - i really don't know the marriage rules all that well; i just try and stay married
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Old 07-22-2016, 03:49 PM   #55
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Id still be curious if someone ran a study on a proposal I'd seen awhile back to fix SS in which they got rid of the spousal rules. ie. if your married 50% of your SS would get credited to your account, 50% to your spouses.
Or, end the subsidies for married couples (spousal benefits--no matter how they are accrued/counted) that are paid for by participants who are single. A wage earner who is married and earning "benefits for two" would pay in at a higher rate. That, together with "year-by-year accrual (to stop people from paying the single rate for 29 years and getting married 1 year before FRA to take advantage of the spousal benefits) could help put the program on a more secure financial footing.
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Old 07-22-2016, 07:03 PM   #56
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[MOD EDIT]My point is that high income earners see a large increase in marginal rates. We know decisions are driven by marginal rates. It's a big deal. We would be increasing the marginal rate by 12.6% and I think that's a lot.
I think your math is wrong. With the current limit, someone in the 39.6% tax bracket pays after the phaseout (including employer match as you prefer to do) 52.9% (39.6% + 6.2%*2 + 0.9%). If the limit was removed, they would pay the 55.8% in your prior post. So the impact of repealing the limit would be a 5.5% increase (from 52.9% to 55.8%... 55.8%/52.9% = 105.5%), NOT 12.6%. How do you get the 12.6%?

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So my point is wrong because not a lot of people pay the rate? Well the 12.6% applies to other rates too. It's not an argument to say it doesn't matter because few people are affected.
No, your point was wrong because you were suggesting that someone would simply quit working if their marginal tax rate increases and in looking at marginal tax rates you need to look at what the decision-maker (in this case the employee) pays, not what the government collects from the employee and the employer. I think most people would agree that a marginal rate of 46.7% is as much of a disincentive to work as a 48.15% marginal rate.

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So it's not a tax because the government says that the paystub should look different as we pretend the employer pays the tax? We all know the employee pays the tax.
I never said that it is not a tax... I said that in making a decision to work or not that the employee will look at the impact to them and the impact on the employer is not part of the decision analysis. What is your logic to claim that "We all know the employee pays the tax"?

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It would add 12.6% to the tax bracket. Pretending some of it isn't there won't change that.
Again, please provide the calculation for the 12.6% increase in the marginal tax rate. A tax bracket is what applies to a taxpayer, not what the government collects and in this case there are two taxpayers, the employee and the employer and they each have a marginal tax rate.

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So now your saying that you don't mind paying it where your marginal rate likely might not be that large. After all you have said not many people pay those high rates. So nobody else can object or make decisions on this high rate because you blessed it in all your goodness.
I respect your right to have an opinion... I just think you are wrong. As a high income employee, taxes were a nuisance but it is what it is and I actually didn't notice when OASDI phased out of my paycheck so I would not have noticed if it didn't phase out. Since I had virtually no control over my taxes I didn't focus much on marginal tax rates... they were what they were... for me it had zero impact on my decision to continue work or not. I think for most people at those lofty levels many other things are part of the equation and marginal tax rates are not critical to the decision and we can just agree to disagree on that.
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Old 07-23-2016, 04:59 PM   #57
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Id still be curious if someone ran a study on a proposal I'd seen awhile back to fix SS in which they got rid of the spousal rules. ie. if your married 50% of your SS would get credited to your account, 50% to your spouses. Then everyone would have their own account, there would be no claiming against your spouses and no one would have to worry about how long you were married to someone else, that you can marry multiple times and then who collects what.. it seems to me it would not only be more fair, easier to manage, but would also potentially save a lot of money in SS payouts and administration.
I've always liked that idea. It's so much simpler than our current rules.

If most women worked outside the home back in 1940, we might have had that rule all along.

I'm not aware of any analysis of the impact on total SS payouts.
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Old 07-23-2016, 05:31 PM   #58
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What is your logic to claim that "We all know the employee pays the tax"?
The general idea is that the legal incidence of a tax is not the same as the economic incidence.

For example, suppose we tax all oil refiners $1/gallon of gasoline that they ship out of the refinery, that doesn't mean the refiners' profits will go down by $1/gallon. It's more likely that pump prices will go up by (nearly) $1/gallon.

Economists think that the way to work this out is to look at the relative elasticities of the two parties to the taxed transaction. In the case above, it's easier (in the long run) for owners to take their capital out of money losing refineries than it is for auto owners to live without gasoline.

Regarding SS & Medicare taxes, employers can avoid the tax by outsourcing in the US, or outside the US, or automating. US workers don't have similar options.

(I used to work for a company that sold its product through "employees" and "brokers". The company looked at total costs of sales, and reduced employee cash commissions to offset the fact that the brokers paid their own "self-employment tax.)

The CBO's tax incidence studies make this assumption:

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CBO also assumes, as do most economists, that the employers share of payroll taxes is passed on to employees in the form of lower wages than would otherwise be paid.
https://www.cbo.gov/publication/24725
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Old 07-23-2016, 05:43 PM   #59
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The general idea is that the legal incidence of a tax is not the same as the economic incidence.
............
What? Then is it possible that free health insurance from employers isn't really free?
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Old 07-23-2016, 05:51 PM   #60
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I kind of like the "donut hole" approach....
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