Paying for the "payroll tax" cut

[Surewhitey]

+1 the mystery to me is why they haven't just made the change. I don't think that anyone earning $106,800 to $150,000 would be upset, particularly if they know that their SS will be more secure as a result.

That's $2,716 / year additional...I'd notice that.

 

[ronocnikral]

Well, a Ponzi Scheme is a criminal effort to steal from others, and SS is not that. We only know how much we will get back of what we put in later in life. If we didn't earn as much as we thought or hoped, or something else happened, it worked. If we did well, like insurance, we were covered and had the good fortune to not have to collect.

Most would probably agree it would be better if the liabilities were funded.

As someone who used to have the same view as evrclrx311, I have over a brief period of time realigned my stance more in line with MichaelB. While SS is definitely not the most efficient program out there, it covers things so we don't have to deal with them on an individual level or if our ingenious plans turn out to not to be so. And the downside to SS is, our ingenious plan was what we thought it was.

 

[justplainbll]

Well, a Ponzi Scheme is a criminal effort to steal from others, and SS is not that. We only know how much we will get back of what we put in later in life. If we didn't earn as much as we thought or hoped, or something else happened, it worked. If we did well, like insurance, we were covered and had the good fortune to not have to collect.

Most would probably agree it would be better if the liabilities were funded.

If the government starts means testing OASI benefits (more than it has already done through the taxation of OASI benefits and surcharges on medicare parts B & D), it would seem to qualify as a Ponzi Scheme (e.g. stealing from those whose combined SS contributions exceeded $200K to help out the 'less fortunate'.
It's insulting to have OASI payments referred to as some sort of an unearned welfare / public assistance type entitlement.

 

[MichaelB]

If the government starts means testing OASI benefits (more than it has already done through the taxation of OASI benefits and surcharges on medicare parts B & D), it would seem to qualify as a Ponzi Scheme (e.g. stealing from those whose combined SS contributions exceeded $200K to help out the 'less fortunate'.

Means are already figured into SS, both in collections with a salary ceiling and in calculating the PIA. As the relationship between what is paid and what is collected becomes less direct SS becomes a tax, but it is not stealing. Medicare payments are not surcharges because the full value of the benefit is not being paid for.

It would be helpful for both SS and medicare if the ongoing cost and future liability were funded.

 

[ronocnikral]

If the government starts means testing OASI benefits (more than it has already done through the taxation of OASI benefits and surcharges on medicare parts B & D), it would seem to qualify as a Ponzi Scheme (e.g. stealing from those whose combined SS contributions exceeded $200K to help out the 'less fortunate'.
It's insulting to have OASI payments referred to as some sort of an unearned welfare / public assistance type entitlement.

There is somewhere on the SSA website where they straight up say those who contribute at the max contribution will get proportionately less than some who contributes at say half the max contribution limit.

We have a progressive tax system. Those who earn more pay more. And if they do choose to analyze how their money is spent, they proportionally more for services they use or don't use. That doesn't make it a ponzi scheme.

 

[samclem]

It would be helpful for both SS and medicare if the ongoing cost and future liability were funded.

Or, if the payments were pegged to the annual revenues raised by the payroll taxes. This would be an ideal time to start (since SS happens to be close to revenue neutral right now--not collecting much more or less than is going out).

We're a national family with live-in older parents. If the young folks earning the paychecks are having a rough time and earning less money each month, Gramps might have to cut back on his Pecan Sandies. People claim it is "pay as you go," so let's see what that means.

 

[MichaelB]

Or, if the payments were pegged to the annual revenues raised by the payroll taxes. This would be an ideal time to start (since SS happens to be close to revenue neutral right now--not collecting much more or less than is going out).

We're a national family with live-in older parents. If the young folks earning the paychecks are having a rough time and earning less money each month, Gramps might have to cut back on his Pecan Sandies. People claim it is "pay as you go," so let's see what that means.

The funds are out of balance but I am not suggesting a specific solution. There are many ways to correct the underfunding.

 

[donheff]

Or, if the payments were pegged to the annual revenues raised by the payroll taxes. This would be an ideal time to start (since SS happens to be close to revenue neutral right now--not collecting much more or less than is going out).

Only after we "realized" the trust fund by paying it down thru FIT. Otherwise, switching to a true pay as you go system would, in effect, be a very regressive retroactive tax on everything we paid into the trust fund.

 

[samclem]

Only after we "realized" the trust fund by paying it down thru FIT. Otherwise, switching to a true pay as you go system would, in effect, be a very regressive retroactive tax on everything we paid into the trust fund.

Yes, I see your point: The (regressive) payroll taxes were used to support general fund spending for years, now it's time for (progressive) income taxes to pay back Social Security recipients. It's "group identity rationale", but I can see the reasoning, and there's no way to otherwise determine "fairness" on an individual basis.
So, we do that for the next 12 years (when the IOUs will be exhausted) and then start real pay-as-we-go.
We'd have to start changing expectations starting today. Directly above the signature block on the 1040: "I also acknowledge I am aware that the Social Security payout system will change and that my monthly benefits will likely be lower than previous projections beginning in 2024. I am responsible for providing for my welfare."

 

[Texas Proud]

That's not correct Chuckanut. It's a state by state determination. For example, here in the Midwest, Illinois public school teachers do not participate in SS but Wisconsin public school teachers do.

I have read a few people on this... just to clarify it is not even state by state... it is the gvmt entity that gets to choose.... here in Texas I had one sister who taught and she did not pay into SS... another was at a university and did... there was a loophole that was closed that allowed someone to get SS if they retired paying into SS... there were school districts who would charge retiring teachers to work ONE day at the district, pay into SS and qualify for spousal payments...

 

[jclarksnakes]

Here in Georgia some county school systems participate in SS and some do not.

 

[ziggy29]

Here in Georgia some county school systems participate in SS and some do not.

I believe until about 1984, many state and local government agencies were exempt from Social Security (on the theory, I think, that they already provided adequate pension plans). After Social Security reforms around that time (remember, the ones that were supposed to "save" Social Security for 75 years?), this provision was eliminated, but public employers who had already been exempted from it had a grandfather clause to allow them to continue opting out of it.

(This was, by the way, at the same time as Congress was no longer exempt from paying into SS, debunking an urban legend that persists to this day.)

Some opted into to the system and some used their grandfather clause to stay out of it.

 

[Alan]

Hmmm... If we could opt out, would not the most financially successful people be the ones who opted out? Would not SS then be unviable?

Not if they do it the way the UK did in the 1980's. You can opt out of half of it, paying only ~3.1% instead of 6.4%. You can then invest in the market through private companies. At retirement age you get the basic old age pension which is lower if you opted out. If you have other pensions or guaranteed sources of income to take you above a minimum threshold then you can do what you want with your investments, otherwise you must purchase an annuity with it.

BIL opted out back in the 80's and is very pleased with how it is working out for him.

 

[REWahoo]

Not if they do it the way the UK did in the 1980's. You can opt out of half of it, paying only ~3.1% instead of 6.4%. You can then invest in the market through private companies. At retirement age you get the basic old age pension which is lower if you opted out. If you have other pensions or guaranteed sources of income to take you above a minimum threshold then you can do what you want with your investments, otherwise you must purchase an annuity with it.

BIL opted out back in the 80's and is very pleased with how it is working out for him.

But we know that will never work here.

 

[Alan]

But we know that will never work here.

Exactly - still too much government interference. We don't need no stinking safety net.

 

[samclem]

Not if they do it the way the UK did in the 1980's. You can opt out of half of it, paying only ~3.1% instead of 6.4%. You can then invest in the market through private companies.

The system there must be structured quite a bit differently, or was like this from the start. If we allowed people to do this, the 3.1% taxes wouldn't come close to funding the present outgoing checks of those getting the "full deal", leading to a big flood of red ink until the first of the "semi-opt-outers" hit retirement age and began collecting a smaller check.

An interesting concept. The last politician who suggested such a semi-opt-out plan in the US got shouted down, so I don't think we'll see it proposed seriously again very soon.

 

[Alan]

The system there must be structured quite a bit differently, or was like this from the start. If we allowed people to do this, the 3.1% taxes wouldn't come close to funding the present outgoing checks of those getting the "full deal", leading to a big flood of red ink until the first of the "semi-opt-outers" hit retirement age and began collecting a smaller check.

An interesting concept. The last politician who suggested such a semi-opt-out plan in the US got shouted down, so I don't think we'll see it proposed seriously again very soon.

The UK is the only country in Europe that has a SS Trust Fund similar to the USA. I've no idea how healthy it was cicra 1985 when the new scheme was introduced, and I don't know how quick the uptake was, or how many folks participate today.

As you say, the problem is who pays for the transition. The UK decided to play the long game and after more than a quarter of a century it has never reverted to the old system. That is a very simplistic view as I've no idea of the details. I was just saying that other countries have partially privatized SS.

 

[Texas Proud]

I believe until about 1984, many state and local government agencies were exempt from Social Security (on the theory, I think, that they already provided adequate pension plans). After Social Security reforms around that time (remember, the ones that were supposed to "save" Social Security for 75 years?), this provision was eliminated, but public employers who had already been exempted from it had a grandfather clause to allow them to continue opting out of it.

(This was, by the way, at the same time as Congress was no longer exempt from paying into SS, debunking an urban legend that persists to this day.)

Some opted into to the system and some used their grandfather clause to stay out of it.

Do you have anything showing that I think that it was the gvmt entities that could opt out, not the individual employees... the theory was there was a separation of state gvmt from fed gvmt and the fed could not force the states to have their employees covered...

 

[ziggy29]

Do you have anything showing that I think that it was the gvmt entities that could opt out, not the individual employees... the theory was there was a separation of state gvmt from fed gvmt and the fed could not force the states to have their employees covered...

It's the employer, not the individual, that choose to remain exempt. The employees were either in or out depending on what their state or local government employer chose.

 

[Gone4Good]

The system there must be structured quite a bit differently, or was like this from the start. If we allowed people to do this, the 3.1% taxes wouldn't come close to funding the present outgoing checks of those getting the "full deal", leading to a big flood of red ink until the first of the "semi-opt-outers" hit retirement age and began collecting a smaller check.

An interesting concept. The last politician who suggested such a semi-opt-out plan in the US got shouted down, so I don't think we'll see it proposed seriously again very soon.

As I recall, the proposal was floated as a type of free lunch without acknowledging the "flood of red ink" you correctly identify.

Certainly different opinions over the merits of the end goal persist, but what stops people from seriously proposing something like this again is how to pay for the transition. Nobody likes paying for things.

 

[Independent]

As I recall, the proposal was floated as a type of free lunch without acknowledging the "flood of red ink" you correctly identify.

Certainly different opinions over the merits of the end goal persist, but what stops people from seriously proposing something like this again is how to pay for the transition. Nobody likes paying for things.

+1

 

[Independent]

I guess what I meant was that the social insurance inherent in SSA is important. I get that we need to support people who REALLY need it... the main benefit (that check you receive when you retire) is unnecessary for some people. In fact, it only works to dilute (however small) our ability to accumulate wealth.

....

Again, I understand that not everyone has the means, desire or knowledge to protect themselves financially... but it would be nice if those of us who did could opt out - so that our country could slowly reduce SSA overall percentage of the governments yearly obligation. I understand that is impossible the way the current system is written. I don't mind paying taxes to help out... I just don't agree with the system as a whole.

The underlying message I was trying to convey is that Social Security is forced on us... early in our careers we hate it (if we understand it at all), but by the time we retire it's too late to change because then it would be "unfair" for us, our generation. It has grown into something so big that it can't be removed... and if it is mishandled it can really get our country into trouble.

I'm guessing that your complaint about "the system as a whole" is that it's paygo. If that's the case, I'd say that it's no harder for this generation to change that than it was for prior generations. Humans have been caring for their elders through paygo methods for millenia. Americans in the 1950's were caring for there parents directly, and would have spent more on direct gifts if there hadn't been a SS system.

OTOH, I think we could make a significant change to the benefit amounts. I'm okay with paying taxes so that old people who couldn't/didn't save for retirement have survival income of, say, $10k annually. I'm even okay with paying additional taxes so that all old people get $10k, because I understand that means testing an old age benefit is an invitation to massive gaming and cheating. But, I don't want to pay the additional taxes so that higher income people can get higher amounts. If $10k is enough to live on, I'd rather not pay higher taxes so that some people can get $29k.

Maybe that's what you meant by the system as a whole.

 

[ziggy29]

I'm guessing that your complaint about "the system as a whole" is that it's paygo. If that's the case, I'd say that it's no harder for this generation to change that than it was for prior generations. Humans have been caring for their elders through paygo methods for millenia. Americans in the 1950's were caring for there parents directly, and would have spent more on direct gifts if there hadn't been a SS system.

I think this true, but there are other nuances in today's society:

1 -- Before the SS/Medicare era, "retirement" tended to be the point at which the person was no longer physically or mentally to produce, or to "add value" with their abilities. And in the most cases, that was either the day dropped dead (if sudden) or within a couple of years (if not sudden). There may be a few situations (incapacitating injury, dementia, et cetera) where caring for a non-working family member was a long-term thing, but not to the extent of providing for the long, healthy retirements of today.

2 -- Before the SS/Medicare era, caring for the incapacitated, the disabled and the elderly were almost entirely provided by family (and sometimes by charity). The expectation today is that government does more. Thus there was a shift of responsibility to the overwhelmingly willing to the often unwilling.

3 -- The current situation is exacerbated by demographics that makes "paygo" a "birth lottery" system where the deal you get (good or bad) is largely dependent on when you were born.

 

[Independent]

I think this true, but there are other nuances in today's society:

1 -- Before the SS/Medicare era, "retirement" tended to be the point at which the person was no longer physically or mentally to produce, or to "add value" with their abilities. And in the most cases, that was either the day dropped dead (if sudden) or within a couple of years (if not sudden). There may be a few situations (incapacitating injury, dementia, et cetera) where caring for a non-working family member was a long-term thing, but not to the extent of providing for the long, healthy retirements of today.

2 -- Before the SS/Medicare era, caring for the incapacitated, the disabled and the elderly were almost entirely provided by family (and sometimes by charity). The expectation today is that government does more. Thus there was a shift of responsibility to the overwhelmingly willing to the often unwilling.

3 -- The current situation is exacerbated by demographics that makes "paygo" a "birth lottery" system where the deal you get (good or bad) is largely dependent on when you were born.

1. I doubt that it was a dramatic thing. Most people just slowed down. Gramma did more sewing, grampa repaired the harness. But, they didn't fully support themselves, their children covered the gap. I'd say that if people today were willing to work as long as people in earlier generations, then they wouldn't find it hard to pay SS taxes for current retirees and save for their own (short) retirements.

2. True. I'm simply saying that both the family and the public system were paygo. SS didn't invent that concept.

3. The old system was exacerbated by the "death/income lottery". Nobody knew how many of their children would live to adulthood, would have good incomes, or would be willing to support their parents. The new system actually provides a more predictable result than the old.

 

[meierlde]

1. I doubt that it was a dramatic thing. Most people just slowed down. Gramma did more sewing, grampa repaired the harness. But, they didn't fully support themselves, their children covered the gap. I'd say that if people today were willing to work as long as people in earlier generations, then they wouldn't find it hard to pay SS taxes for current retirees and save for their own (short) retirements.

2. True. I'm simply saying that both the family and the public system were paygo. SS didn't invent that concept.

3. The old system was exacerbated by the "death/income lottery". Nobody knew how many of their children would live to adulthood, would have good incomes, or would be willing to support their parents. The new system actually provides a more predictable result than the old.

Also for those who today would qualify for medicaid there used to be the poor houses run by the county. (According to web sites they were largely for the elderly) It is interesting in one sense that we essentially privatized the care of the indigent elderly.