Why rich guys want to raise the retirement age

[NW-Bound]

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Originally Posted by HFWR I'm still a w*rking stiff; one of you FIREd types with too much time on your hands should report back... Whattaya do all day?

Man, even a FIREd guy likes me finds myself posting too much sometimes. I often log off to prevent myself from spending too much time here, but then make a mistake to check and see that someone has made a reply, then have to log back in. Like right now.

PS. I logged off, then just logged back in to fix a grammatical error. I hate it when I made an error like that. Logging back off again now.

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Originally Posted by Midpack Unless you mean federal funds spent in each state, federal spending info is readily available. You can readily see discretionary spending (other than defense) is relatively small. When people throw up foreign aid, national parks, the arts, etc. as ways to reduce deficits/debt - I wonder if they've ever looked at how relatively small those expenses are - even taken together? Doesn't mean they shouldn't be scrutinized, but they won't begin to fix our deficit spending issue. And the cost detail for any category can be found in seconds with Google.

Yes, the spending categories that are mentioned above are relatively small. My point was that for states with only a couple of millions of residents, they may skew the statistics.

Even if federal spending in a state is directly for the benefits of the state residents such as SS and Medicare, is it that state's fault that retirees from other areas of the country flock there for their retirement?

What I am trying to say is that statistics may show something that appears obvious, but if we dig further, it is no longer that simple.

[ChrisC]

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Originally Posted by scrabbler1 ChrisC, spousal benefts are based on the other spouse's earnings. I still claim that SS is an income replacement program, even if you don't agree with that. BTW I am not a high-income earner. I am an early retiree who has not paid a dime in FICA taxes in 4 years. My wage income never exceeded the cap so I am in no way affected by a change to the cap for taxation purposes. As much as I like to "soak the rich," I do have my limits. And this is one of them.

Yes, but legislative determinations to add benefits for spouses and children, though those benefits might be based on wage earner income of the primary beneficiary, simply represent social welfare policies to enhance the financial condition of the family. My point in this is that your irritation about lifting the cap appears to be based on a "transactional view" of the Social Security program as solely an income replacement benefit program for taxpayers based on payroll taxes paid into the system, when I think of it otherwise.

There's a lot going on with "fairness" in Social Security beyond income replacement. Clearly, you know that the first bend point clearly favors the lower wage income earner by design. Yet, I think it was Milton Freidman who once postulated that Social Security discriminates against lower wage income earners and minorities because these groups tend to have shorter life expectancies and generally pay into a system which they disproportionately as a group are not able to fully take advantage; wasn't it Freidman who once argued that Social Security effected a wealth distribution from poor, lower wage earners to rich guys?

I agree to disagree with you on how we each view the program.

BTW, we're high wage income earners that would be affected by lifting the cap; I'm in favor of paying more taxes, including additional income and estate taxes. I'm not in favor of raising the retirement age.

[ERD50]

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Originally Posted by ChrisC There's a lot going on with "fairness" in Social Security beyond income replacement. .... I agree to disagree with you on how we each view the program.

And this is my problem with any discussion of SS. It is some odd combination of insurance, welfare, and a retirement plan with higher earners getting more (in absolute terms, not in 'investment return').

IMO, we should have a retirement plan, an insurance plan, and a safety net plan, and they should be separate. This co-mingling makes it difficult to analyze.

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BTW, we're high wage income earners that would be affected by lifting the cap; I'm in favor of paying more taxes, including additional income and estate taxes.

BTW, no one is stopping you or the many like-minded people who express this sentiment.

Government - Gift Contributions to Reduce Debt Held by the Public

-ERD50

[HFWR]

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Originally Posted by Chuckanut Or work evenings emptying the trash cans at investment banks.

Social Security History

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As colonial America grew more complex, diverse and mobile, the localized systems of poor relief were strained. The result was some limited movement to state financing and the creation of almshouses and poorhouses to "contain" the problem. For much of the 18th and 19th centuries most poverty relief was provided in the almshouses and poorhouses. Relief was made as unpleasant as possible in order to "discourage" dependency. Those receiving relief could lose their personal property, the right to vote, the right to move, and in some cases were required to wear a large "P" on their clothing to announce their status.

So, should retirees have to wear an "R"?

[scrabbler1]

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Originally Posted by ChrisC Yes, but legislative determinations to add benefits for spouses and children, though those benefits might be based on wage earner income of the primary beneficiary, simply represent social welfare policies to enhance the financial condition of the family. My point in this is that your irritation about lifting the cap appears to be based on a "transactional view" of the Social Security program as solely an income replacement benefit program for taxpayers based on payroll taxes paid into the system, when I think of it otherwise.

What I said is that one's benefits are based on one's wage income below the cap, not based on payroll taxes paid into the system. The benefit formula does not include payroll taxes paid because the payroll tax rate and cap have varied over the years, especially prior to ~1984. The benefit formula replaces wage income below the cap, you can't escape that fact. Eligibility to collect benefits does not always require having had wage income (i.e. survivors, spousal), and I am fine with that. I also agree with ERD50 when he describes the program as a combination of various elements such as a "national" disability program, a "national" life insurance program, and a "national" pension program, and things get muddled when describing it as only one of them at the exclusion of others.

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Originally Posted by ChrisC There's a lot going on with "fairness" in Social Security beyond income replacement. Clearly, you know that the first bend point clearly favors the lower wage income earner by design. Yet, I think it was Milton Freidman who once postulated that Social Security discriminates against lower wage income earners and minorities because these groups tend to have shorter life expectancies and generally pay into a system which they disproportionately as a group are not able to fully take advantage; wasn't it Freidman who once argued that Social Security effected a wealth distribution from poor, lower wage earners to rich guys? I agree to disagree with you on how we each view the program. BTW, we're high wage income earners that would be affected by lifting the cap; I'm in favor of paying more taxes, including additional income and estate taxes. I'm not in favor of raising the retirement age.

There are offsetting effects on lower wage earners versus higher wage earners. Lower wage earners will have a greater percentage of their wage income replaced by SS but not collect benefits as long, while higher wage earners will have a lesser percentage of their wage income replaced by SS but collect benefits longer. It would be interesting to see which effect dominates.

[ChrisC]

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Originally Posted by ERD50 BTW, no one is stopping you or the many like-minded people who express this sentiment. Government - Gift Contributions to Reduce Debt Held by the Public -ERD50

Oh, I could tell that one was coming. And I'm always amused by it. It's really an off-topic discussion but if you want to start another thread about contributions to charities and the government, please feel free to do so and I'll join in the discussion.

My point in mentioning my own particular situation was to rebut the idea raised by one or two others in this thread that the discussion of Social Security issues is primarily driven by self-interest. Both my give and take with Scrabbler1 shows that it's not generally the case.

[scrabbler1]

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Originally Posted by ChrisC My point in mentioning my own particular situation was to rebut the idea raised by one or two others in this thread that the discussion of Social Security issues is primarily driven by self-interest. Both my give and take with Scrabbler1 shows that it's not generally the case.

On this point I do agree with you. I would not be affected at all if the payroll tax cap were raised even though I oppose it. I would be affected (eventually) if SS benefits became fully taxable, something I favor.

[ERD50]

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Originally Posted by ChrisC Oh, I could tell that one was coming. And I'm always amused by it. It's really an off-topic discussion but if you want to start another thread about contributions to charities and the government, please feel free to do so and I'll join in the discussion.

I'd love to, and would like to know why you find it so amusing. But that thread would be shut down in no time, so I guess I'll have to leave it at that.

-ERD50

[imoldernu]

I always wonder whether posting an opinion article is being too controversial...
this one seems to fit in to the "rich guys" part of the discussion.

Ten Numbers the Rich Would Like Fudged | Alternet

Even if I had five or ten million, (which I surely don't...), I don't think I'd be in the "rich" category as defined in the article.

[HFWR]

I suppose we could argue theoreticals 'til the cows come home, but at some point compromises need to be made, and the problems REALLY solved...

[UnderTheRadar]

I agree with Scrabbler1. I would be in favor of removing the cap as long as the "bend points" were "re-progressivised" so that there was some benefit to all. There has to be some incremental benefit for people to work harder and make better choices, or they won't.

[BLS53]

Do Simpson-Bowles and forget about it for a few decades.

[Khufu]

The question should be: why should the income of upper income people be blessed with lower tax rates? These people don't need incentives to become rich, they are already doing quite well. By incentives I mean
much lower effective payroll tax rate, because of the cap
lower income tax rate on dividends and capital gains
no Social Security tax at all on dividends and capital gains

Lower income people, of course, have little or no dividend and capital gains income.

One of the main benefits of Social Security is that poverty among the elderly has been drastically reduced. To me that's a real benefit, even if I might have been lucky enough myself to avoid old age poverty without it. The 1%ers as a group don't agree.

[LOL!]

Since wealth tax was mentioned a few times in this thread, what's your take on this OpEd piece in the New York Times: http://www.nytimes.com/2012/11/19/op...ot-income.html wherein Daniel Altman writes:

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Brackets of, say, zero percent up to $500,000 in wealth, 1 percent for wealth between $500,000 and $1 million, and 2 percent for wealth above $1 million would probably have done the trick as well.

Forget about Safe Withdrawal Rates when your portfolio is taxed at 2% annually although maybe he meant in lieu of income taxes.

OTOH, this guy has a warped sense of taxes and wealth because he apparently lives in NY City.

[ChrisC]

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Originally Posted by UnderTheRadar I agree with Scrabbler1. I would be in favor of removing the cap as long as the "bend points" were "re-progressivised" so that there was some benefit to all. There has to be some incremental benefit for people to work harder and make better choices, or they won't.

We have a regressive payroll tax so that the poor or lower wage earners pay at the same flat level as the rich; the bend points are already engineered in a "progressive" manner to benefit lower wage earners who may not live long enough to take full advantage of the old age retirement benefits of Social Security. Do you really think the 1% or 2% folks in the upper wealth chain need an incentive to work harder because they would draw a bigger benefit check from Social Security? If you have some behavorial studies to support the notion that rich people will work harder because they will get increased social security benefits I'd like to see the studies. I admit there is some "fairness" issue here with removing the payroll tax cap and not making any adjustment to the income replacement calculations, but I think we've crossed similar fairness bridges when we have progressive income tax brackets, estate taxes and exemptions, or permit the myriad of other tax deductions, loopholes or expenditures for specific segments of our society.

[Spokane2303]

So, would a 1 to 2% wealth tax count the value of private and government pensions or would it exclude the value of our 401K and IRA's?

[Lazarus]

Social Security already does not pay off very well for high wage earners. I found that stopping at 55 or stopping at 62 made only about $100 per month difference in benefits. So if I paid in for the next 7 years it would be nothing but a tax to me. Zero return.

Social Security should be funded by itself and not counted as part of the federal budget. It should be pay as you go year by year. If there is not enough coming in then either the taxes have to go up or the benefits go down or a combination. This would keep all the drama about SS running out of money to a minimum.

[ChrisC]

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Originally Posted by Khufu The question should be: why should the income of upper income people be blessed with lower tax rates? These people don't need incentives to become rich, they are already doing quite well. By incentives I mean much lower effective payroll tax rate, because of the cap lower income tax rate on dividends and capital gains no Social Security tax at all on dividends and capital gains Lower income people, of course, have little or no dividend and capital gains income. One of the main benefits of Social Security is that poverty among the elderly has been drastically reduced. To me that's a real benefit, even if I might have been lucky enough myself to avoid old age poverty without it. The 1%ers as a group don't agree.

I agree with your entire post except I question the last line. Many, perhaps most, of the 1%ers want to be taxed at higher levels for precisely the reason you mention. Consider that 8 of the 10 richest counties in America voted for Obama in the last election who ran on a platform for the rich to pay more in taxes: Obama Wins 8 of 10 Wealthiest Counties in US - Yahoo! Finance.

[scrabbler1]

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Originally Posted by Khufu The question should be: why should the income of upper income people be blessed with lower tax rates? These people don't need incentives to become rich, they are already doing quite well. By incentives I mean much lower effective payroll tax rate, because of the cap lower income tax rate on dividends and capital gains no Social Security tax at all on dividends and capital gains Lower income people, of course, have little or no dividend and capital gains income. One of the main benefits of Social Security is that poverty among the elderly has been drastically reduced. To me that's a real benefit, even if I might have been lucky enough myself to avoid old age poverty without it. The 1%ers as a group don't agree.

Khufu, as I have mentioned here before in this thread, the effective payroll tax on wage income goes down above the cap because there is a cap on benefits. Wage income above the cap is not replaced by SS. Do we want to send out 6-figure SS checks to Bill Gates every month to replace his higher wage income?

And there is no payroll tax levied on dividends and cap gains because they, too, are not replaced by SS. And why should they be? They don't disappear when someone retires. As all of us early retirees know, and as I described in a thread a few months ago, I like having my money work for me instead of me working for my money.

Now should dividends and cap gains be taxed at higher income tax rates than they are today? That's a different question from SS taxes. On that I would say yes.

[scrabbler1]

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Originally Posted by Lazarus Social Security already does not pay off very well for high wage earners. I found that stopping at 55 or stopping at 62 made only about $100 per month difference in benefits. So if I paid in for the next 7 years it would be nothing but a tax to me. Zero return.

Lazarus, when I was coming up with a projected SS benefit based on my ~24 years of full-time or part-time work (not counting summer jobs), I figured out that had I worked another 11 years (even at a low, part-time salary) to get rid of those zeroes in the SS benefit calculation, my monthly SS beneft would rise only about 11%. This is because my current AIME (Average Indexed Monthly Earnings) is right near the top of the 32% bend point, so most of those added wages would be replaced at only 15% (the next bend point). So that's a lot of years of extra work, even only 2 days a week, just to get me 11% more SS.