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Old 12-01-2012, 08:13 PM   #61
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Something else that might be on the table in the tax reforms is FICA. I'd remove the phase out of the tax above a certain income level, and you might argue for a progressive FICA tax. I'd combine that with an increase in the starting age for SS and Medicare for those currently under 55. Maybe a year for those between 40 and 55 and a couple for those younger.
The problem with an across the board increase in SS retirement age is that longevity gains among retirees have themselves been regressive, i.e. most of the increase in longevity have gone to the upper income group. The lower half of the working population by income have seen only a small increase. So, that means that increasing the SS retirement age would have a serious adverse effect on the group that does the physical labor which is harder to keep doing when older, depends more on SS for retirement funding, and has little or no other resources to replace SS. It would be very unfair.

This graph from Krugman makes the difference clear.

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Old 12-01-2012, 08:18 PM   #62
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The most recent estimate I have seen is that he is now worth twenty-five billion dollars. That's a truly extraordinary and, in fact, excessive rate of wealth accumulation.
An ""excessive rate of wealth accumulation." That's a finely-tuned knack you've got there for identifying who should be able to keep their property.
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Old 12-01-2012, 08:26 PM   #63
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The problem with an across the board increase in SS retirement age is that longevity gains among retirees have themselves been regressive, i.e. most of the increase in longevity have gone to the upper income group. The lower half of the working population by income have seen only a small increase. So, that means that increasing the SS retirement age would have a serious adverse effect on the group that does the physical labor which is harder to keep doing when older, depends more on SS for retirement funding, and has little or no other resources to replace SS. It would be very unfair.

This graph from Krugman makes the difference clear.

First--individuals retire, groups don't. Some high-earners do hard physical labor, most low-earners probably do not. So we're lumping a bunch of stuff into one pot. Next, maybe Mr Krugman would provide us with a graph of "return on SS premiums paid" for the upper income group and the lower income group. Don't hold your breath for that one, because we both know what it will show. Finally, in the graph above, while you see a growing disparity between income levels, I note that all groups are living longer than retirees of similar income levels in 1986, so everyone is getting a better deal than they would have in 1986. Was it "unfair" then? Is it sustainable now?

If you favor a SS retirement age graduated by income level due to differing life expectancy, you should certainly favor one based on gender (women should work longer). And race--even when decoupled from income--is a highly significant factor in life expectancy, so don't neglect a separate adjustment for that. Smokers should certainly begin getting their SS checks significantly earlier.

In some measure, "fairness" consists of establishing rules and keeping them relatively constant so people can plan their lives.
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Old 12-01-2012, 08:28 PM   #64
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It is interesting that in 1986 life expectancy was so similar and it is so dissimilar only 20 years later. Did the author speculate as to why?

If it was due to things beyond their control then I think you have a point on unfairness. However, if it is due to issues within their control, then I would be less sympathetic.
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Old 12-01-2012, 09:17 PM   #65
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It is interesting that in 1986 life expectancy was so similar and it is so dissimilar only 20 years later. Did the author speculate as to why?

If it was due to things beyond their control then I think you have a point on unfairness. However, if it is due to issues within their control, then I would be less sympathetic.
Poor people with low levels of education are least likely to seek preventive healthcare or routine care for minor problems. High income earners are more likely to seek care, and those with higher levels of education in particular are most likely to seek preventive care. This seems to have a longer term impact.

It's something to bear in mind for those electing to follow an impoverished lifestyle choice.

http://www.cdc.gov/nchs/
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Old 12-01-2012, 09:24 PM   #66
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An ""excessive rate of wealth accumulation." That's a finely-tuned knack you've got there for identifying who should be able to keep their property.
It may be news to you, but all questions of taxation policy are questions of who should be able to keep his property.
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Old 12-02-2012, 12:28 AM   #67
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The problem with an across the board increase in SS retirement age is that longevity gains among retirees have themselves been regressive, i.e. most of the increase in longevity have gone to the upper income group. The lower half of the working population by income have seen only a small increase. So, that means that increasing the SS retirement age would have a serious adverse effect on the group that does the physical labor which is harder to keep doing when older, depends more on SS for retirement funding, and has little or no other resources to replace SS. It would be very unfair.

This graph from Krugman makes the difference clear.

As samclem says individuals retire, not groups and I'd hate to see different SS ages for different "groups". Far better to have a progressive FICA tax. The SS benefit is already progressive, but maybe it should be made independent of your earnings history like in the UK where everyone is going to get the same state pension irrespective of what they put in as long as they have 30 years of contributions. This means the low waged will see a big rise in their pension and higher earners will see it fall. The goal is to provide a livable pension for everyone. The UK is also introducing mandatory retirement savings in either DB or 401k type plans
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Old 12-02-2012, 05:28 AM   #68
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The most recent estimate I have seen is that he is now worth twenty-five billion dollars. That's a truly extraordinary and, in fact, excessive rate of wealth accumulation.
Please sir/madam: By what authority do you claim to determine what is "in fact, excessive rate of wealth accumulation".

"In fact"? What fact defines what is excessive? Please, what fact? Is there a rule I missed that says five million is ok, but six million is not?

C'mon! I will agree it is extraordinary, but who says (beyond yourself) what is or isn't too much? Sez who?!
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Old 12-02-2012, 08:51 AM   #69
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Poor people with low levels of education are least likely to seek preventive healthcare or routine care for minor problems. High income earners are more likely to seek care, and those with higher levels of education in particular are most likely to seek preventive care. This seems to have a longer term impact.

It's something to bear in mind for those electing to follow an impoverished lifestyle choice.

CDC - National Center for Health Statistics
I suspect that you are right and another part is that the poor smoke more than those of means. I guess my point is that the difference in mortality improvements are due to things that are within their control and a result of their poor decisions, so I don't have much sympathy for them. If they reduced smoking they would be both healthier and wealthier. Most insurance plans have no cost preventative care so there is no excuse there.

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Please sir/madam: By what authority do you claim to determine what is "in fact, excessive rate of wealth accumulation".

"In fact"? What fact defines what is excessive? Please, what fact? Is there a rule I missed that says five million is ok, but six million is not?

C'mon! I will agree it is extraordinary, but who says (beyond yourself) what is or isn't too much? Sez who?!
I was floored by the statement of excessiveness as if it were fact rather than opinion.
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Old 12-02-2012, 09:01 AM   #70
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First--individuals retire, groups don't. Some high-earners do hard physical labor, most low-earners probably do not. So we're lumping a bunch of stuff into one pot. Next, maybe Mr Krugman would provide us with a graph of "return on SS premiums paid" for the upper income group and the lower income group. Don't hold your breath for that one, because we both know what it will show. Finally, in the graph above, while you see a growing disparity between income levels, I note that all groups are living longer than retirees of similar income levels in 1986, so everyone is getting a better deal than they would have in 1986. Was it "unfair" then? Is it sustainable now?

If you favor a SS retirement age graduated by income level due to differing life expectancy, you should certainly favor one based on gender (women should work longer). And race--even when decoupled from income--is a highly significant factor in life expectancy, so don't neglect a separate adjustment for that. Smokers should certainly begin getting their SS checks significantly earlier.

In some measure, "fairness" consists of establishing rules and keeping them relatively constant so people can plan their lives.
Good point, Samclem. Because SS is mostly a progressive wage income replacement program (wisely only up to the wage/benefit cap), it replaces a greater pecentage of wage income for lower wage earners than it does for higher wage income earners. What I would like to see, from Krugman or someone else, is a chart or graph which shows which effect dominates in SS overall: lower wage income earners getting a higher percentage of their wage income replaced by SS or higher wage income earners simply living longer.

As to a wealth tax, I feel it would punish savers. That being said, I am fine with an estate tax because it is a tax on the transfer of wealth from one person to another which to me is simply another form of passive income to the recipient.

The local property tax is a flawed type of wealth tax because it taxes the full value of the property even if the owner has a mortgage on it. If we wanted it to be a truer wealth tax then it would be based only on the equity portion of the property owned by the owner. Does this mean anyone who is "underwater" on their mortgage should at least escape paying property taxes if not receive a refund on their negative equity? Not sure. [Using the local property tax to fund public schools has additional problems because it does not take into account how many children, if any, come from each household, but that is another topic for another day.]
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Old 12-02-2012, 09:13 AM   #71
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As samclem says individuals retire, not groups and I'd hate to see different SS ages for different "groups". Far better to have a progressive FICA tax. The SS benefit is already progressive, but maybe it should be made independent of your earnings history like in the UK where everyone is going to get the same state pension irrespective of what they put in as long as they have 30 years of contributions. This means the low waged will see a big rise in their pension and higher earners will see it fall. The goal is to provide a livable pension for everyone. The UK is also introducing mandatory retirement savings in either DB or 401k type plans
The SS you are describing is today's welfare program, one whose benefit is not based on wage income and one without any link, even a tenuous one, between FICA taxes paid in and benefits received. Are we as a country prepared to transform SS into another welfare program. I don't think so and I surely hope not!
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Old 12-02-2012, 09:16 AM   #72
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It may be news to you, but all questions of taxation policy are questions of who should be able to keep his property.
Yes, but getting back to the OP, this thread was about changing our tax code and taxing wealth (long) after the fact. It's one thing to discuss thresholds going forward, and something else to establish same retroactively on wealth that has already been taxed once or more (however imperfectly). The implications going forward associated with such a change are huge, a "leveling" that would also reduce the average wealth considerably in time...that hurts everyone in the long run.
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Old 12-02-2012, 09:30 AM   #73
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Nobody has mentioned the thing that struck me most in the OP -

A tax that looks pretty modest (0% thru $500k, 1% on the next $500k, 2% thereafter)
would raise as much money as the current individual FIT plus the estate tax.

I wouldn't have expected that. It says a lot about the concentration of wealth in the US.

(and, yes I know that's a static calc and it would be hard to collect etc. It's just an interesting fact.)
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Old 12-02-2012, 09:36 AM   #74
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I can think of three "wealth" taxes in the US. Maybe "asset" tax is a more neutral word.

Clearly real estate taxes are a tax on one type of asset.
Income taxes collected on any type of investment income are an asset tax if the income tax does not have an inflation index (assuming there is some inflation).
Estate taxes can be viewed as and asset tax on the accumulated assets of an individual. Instead of paying 2% per year for n years, you pay 35% when you die.
(Of course, estate taxes can also be viewed as income taxes on the heir, since it's the heir that loses spending power. That discussion gets pretty political pretty fast.)
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Old 12-02-2012, 10:00 AM   #75
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The SS you are describing is today's welfare program, one whose benefit is not based on wage income and one without any link, even a tenuous one, between FICA taxes paid in and benefits received. Are we as a country prepared to transform SS into another welfare program. I don't think so and I surely hope not!
Interestingly the new UK SS program I describe is being implemented by a right of center Conservative government. It is claimed that it will reduce overall costs and poverty by shifting the benefits to the lower waged.

The current US system is based on earnings, but the calculation of the SS benefit is progressive in that a low earner gets a bigger amount in proportion to their earnings than a high earner.....hence the existence of WEP
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Old 12-02-2012, 10:26 AM   #76
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Interestingly the new UK SS program I describe is being implemented by a right of center Conservative government. It is claimed that it will reduce overall costs and poverty by shifting the benefits to the lower waged.

The current US system is based on earnings, but the calculation of the SS benefit is progressive in that a low earner gets a bigger amount in proportion to their earnings than a high earner.....hence the existence of WEP
I did a little research of the WEP, or Windfall Elimination Provision. Here is what I found in the SS website:

http://www.socialsecurity.gov/pubs/10045.html#a0=2&amount= .


"Before 1983, people who worked mainly in a job not covered by Social Security had their Social Security benefits calculated as if they were long-term, low-wage workers. They had the advantage of receiving a Social Security benefit representing a higher percentage of their earnings, plus a pension from a job where they did not pay Social Security taxes. Congress passed the Windfall Elimination Provision to remove that advantage."


This WEP looks to be something which will affect fewer and fewer people over time, as more and more people previously exempt from paying into SS now have to pay into it (such as some government employees). WEP is not necessary to assure that most low income wage earners have a greater percentage of their wage earnings replaced by SS than higher income wage earners. It is just an exception for a certain group of people and a dwindling group at that.

What is center-right in the UK is not necessarily center-right in the USA. What did they have before this change?
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Old 12-02-2012, 10:37 AM   #77
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Nobody has mentioned the thing that struck me most in the OP -

A tax that looks pretty modest (0% thru $500k, 1% on the next $500k, 2% thereafter)
would raise as much money as the current individual FIT plus the estate tax.
And the "power" of an "assets tax" to raise government revenue with seemingly small tax rates is a primary danger to those hoping to accumulate enough money to attain some measure of self-sufficiency in retirement. Most people reading this board are counting on real annual average growth of maybe 3-5% on their money, so if the government seizes about 1-2 % of our savings every year (even in years where our investments lose money) it's clear that a person would have to work much longer to save up a respectable nest egg. Then, in retirement the damage continues--if we were counting on a 4% withdrawal rate to sustain us, we now find that 25%-50% of that will be going to the government. So we need a bigger nest egg--back to the problem of accumulating funds with an added 1-2% annual government "drag".
A 1-2% tax on assets probably sounds very reasonable to the average voter who chooses not to save responsibly for retirement. So, I expect it will be popular unless the "base" is somehow kept very broad (e.g. include all assets from the first dollar, include the value of homes, include net present value of SS benefits already earned (whether or not you are getting checks yet), include the NPV of annuities, include the NPV of private and public pensions, etc. Heck, include the "asset" of an individual's future earning power.)

I already paid taxes on this money when I earned it, or will pay income taxes on it when I withdraw it (tIRAs, 401Ks).

I sometimes get the impression that people think these rich people just have their money in a big pile somewhere, and that it grows on its own. In truth it is only growing if it has been loaned to a business, municipality, etc so they can make productive use of it, or it reflects partial ownership of a company. Taking 1-2% of this money out of the private, productive economy every year is no way to make us more productive. And productivity is the only foundation for future prosperity and, yes, increased government revenues in the future.
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Old 12-02-2012, 10:58 AM   #78
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This WEP looks to be something which will affect fewer and fewer people over time, as more and more people previously exempt from paying into SS now have to pay into it (such as some government employees). WEP is not necessary to assure that most low income wage earners have a greater percentage of their wage earnings replaced by SS than higher income wage earners. It is just an exception for a certain group of people and a dwindling group at that.

What is center-right in the UK is not necessarily center-right in the USA. What did they have before this change?
I state workers will probably continue to be a large group affected by WEP.

The UK's current system (it's being phased out for the new flat benefit scheme I described) is one that provides a "basic state pension" based on number of years of contributions, so everyone gets the same amount, and then there's a second state pension that is based on earnings. The new scheme removes the earnings related state pension and increases the basic state pension payments. Its being combined with potential pension age increases and it's still controversial, but looks like it will go forward.

Budget 2012: flat-rate state pension confirmed | UK news | guardian.co.uk

Another big change in the UK is mandatory automatic enrollment of all employees (above some small wage threshold) in a retirement scheme that must meet certain minimum requirements. The employee can opt-out if they want, but they'll loose the mandatory employer contributions. If the employer doesn't have their own retirement plan they have to enter NEST (National Employment Savings Trust).

NEST Pensions - Your Questions Answered | money.co.uk

These approaches to solving retirement income issues would face problems in the US on a national level, but CA is implementing mandatory retirement savings.
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Old 12-02-2012, 11:12 AM   #79
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Old 12-02-2012, 01:01 PM   #80
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As to a wealth tax, I feel it would punish savers. That being said, I am fine with an estate tax because it is a tax on the transfer of wealth from one person to another which to me is simply another form of passive income to the recipient. ...
What about a person with a disabled child? That could take millions to fund care for them. Shouldn't you be allowed to do that?

And if they make exceptions, and trusts and such for this - the rich hire lawyers to use this in unintended ways ('But Paris deary will be emotionally scarred w/o millions of $ - she will be harmed' ). I'm not a fan of an estate tax (and I do prefer to call it the 'death tax', since that is the trigger - to me 'estate tax' sounds like 'property tax'), though it would be more tolerable if it was at a low enough rate so as to eliminate the motivation to avoid it. But any significant % of a large number, that is a one time cost, will create incentives to avoid it.

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