Are you afraid that the tax system will be changed to VAT, making a Roth a bad deal?

[Gone4Good]

SS is called a tax. However you are purchasing a future benefit., those that do not pay do not get the benefit. So if you are talking about people paying taxes lump all those campers in the national parks in there too.

No, Social Security is quite different than park fees. Not only do I have a choice of whether I go to the park, but I receive a service in real time. The only difference between the fee charged by the National Parks Department and Disney Land is one is owned by the government and the other is not.

Social Security, on the other hand, is completely different. First of all it is compulsorily. You can't choose not to participate. Secondly, your Social Security dollars don't by you anything. You have absolutely zero property or contract rights for your SS tax dollars. You can't monetize your benefit. You can't transfer it. You can't sell it. You can't bequeath it. And if you don't get it, you have zero recourse. You don't own anything. What you have is a political promise for a future benefit that even the promissor has said in writing they don't have the money to pay. You have nothing. It is a tax, plain and simple.

 

[winger]

I don't think the tax deductions for families with kids are there to encourage people to have more children. More likely, the deductions are there because raising kids costs money, and there is a perceived net social benefit in assuring families have enough money to see to basic needs before the government starts taking any of it.

Well, it seems to be a popular way to reduce FIT. Realistically, it probably raises many of your other taxes. Real estate and sales tax come to mind.

I do think there is always social engineering in tax laws. We don't know all the unintended consequences of these tax laws, whether federal or local.

Money changes everything......

 

[dex]

I've told our civil-engineer-wannabe progeny that if she wants lifetime employment in her avocation then she should work for the state DOT. Or the Dept of Environmental Services' "sewage branch"...

You gave her good advise; if those are federal agencies. Federal government jobs will be among the best bets in the future for providing the worker with the traditional middle class expectations - health care, pension, good salary, steady employment and reasonable hours.

 

[Rustic23]

g4g
you are wrong.

 

[harley]

Well, I'm glad that's settled.

 

[Rustic23]

Me Too

 

[ERD50]

In what part of my post did I ever mention you?

Here's the "offending" quote . . .
Me thinks he doth protest too much.

Well then how about addressing the comments of the posters here, rather than creating some straw-man group that you can knock down?

I could pepper my posts with comments about the people that want to destroy capitalism and won't be happy until everybody is poor, or some such drivel. It doesn't add to the discussion. How about we discuss the points, rather than make broad over-reaching statements about 'some people'?

-ERD50

 

[Gone4Good]

g4g
you are wrong.

I see your point.

 

[jIMOh]

As I see it, it makes a difference. When an individual makes a contribution to a Roth, he pays the tax on that income up front. If he makes a contribution to a deductible TIRA, he pays no tax on the income used to make the contribution when the money is invested, but must pay tax on the back end. The more that the later tax burden gets shifted from income taxes to consumption taxes, the more the individual with the TIRA benefits, and the more the person who paid taxes up front gets a worse deal relatively speaking (since now he'll pay tax again when he spends the money rather than having truly tax-free use of the funds).

One flaw in this thinking

If I am in 25% bracket (before deductions and adjustments) and then use the Roth because I am not eligible for a TIRA deduction anyway (I have a 401k) and if I was eligible for the deduction, it would be only 15% anyway...

so for $750 I get better advantages like this

-- Lower RMDs than if everything were in Traditional IRAs.
-- Ability to tailor taxable withdrawals from TIRAs to stay under the higher FIT brackets
-- Flexibility regarding future tax legislation--we can move money or spend preferentially to avoid getting walloped when the political winds change.

For $1500 per year, I am will to pay "that tax" for the chance that I get a benefit later.

The money coming out of the TIRA would be taxed at 25% ($2500), so its a decent bet.

My take on future taxes is this

1) Taxes will exist
2) the current taxes will be raised or lowered
3) all new taxes are "raised" (if its a new tax it went from 0 to something, so that is a raise in my taxes)
4) some taxes can be controlled by location (property tax, state tax, local tax) and those same taxes, even if they are new, could still be controlled by location. I could move 10 minutes away and lower my property taxes by close to 75% (suburban to rural) on same size house.
5) If I cannot control the tax, I will control who I vote for the following November.

I found it interesting that no one thinks the tea party will get a strong enough hold to actually reform how washington dc does business. I actually think there is a reasonable chance the tea party platform (less government) takes hold within 30 years. This would lower taxes considerably from where they are now IMO.

 

[jIMOh]

I think a VAT is a horrible idea. I dislike paying taxes, but I truly despise paying hidden, complicated taxes.

There is nothing particularly wrong with the basic structure of our current tax system except that we've layered a ridiculous amount of complexity onto it, and that we've allowed a whiny, child-like electorate to demand a high level of government services at a tax-rate too low to sustain those services.

Some basic tax changes that I would be in favor of--

1. Remove the AMT and increase the top income tax bracket by enough to make it revenue neutral. The AMT is a pointless addition to our system. Get rid of it.

2. Start removing deductions instead of adding them. We keep giving these "targeted" tax breaks to encourage behavior, but at the end of the day we are just shifting the tax burden around. Now that I am married with a house, it benefits me, but I think it is completely unfair to the single childless renter. Simple is better.

3. Start shifting FICA from a wage-based tax to an energy sales tax. Start reducing the employer side of FICA (another sneaky hidden tax) and start replacing that revenue with a gas/oil/natural gas federal sales tax. It makes sense to reduce taxes on something we want more of (employment), and increase taxes on something we want less of (energy consumption).

4. Start mocking any politician that talks about tax cuts without discussing the spending cuts that must go along with them. We're currently digging a hole that could bankrupt us as a nation. We must stop pretending that we can get something for nothing.

Lots of posters in this thread received a thanks from me
You deserve a reply (instead).

1) remove amt and raise top tax rate and be revenue neutral
I agree

2) remove deductions... hmm? I agree it shifts, but some of the behavior it encourages is a good thing, and I would also take the stance that few people have kids just to get a tax deduction, but I would bet some people have kids to get more handouts, so all in all, that might be revenue neutral to remove kids from the tax code.

But then there is the gerber baby...
and having kids means those people are creating new (FUTURE) tax payers so from a tax theory standpoint, its OK to reward that behavior.

3) No idea what an energy based tax is... my thoughts on FICA is raise the age for SS one year every 6 years (so every 6 months the SS age increase 1 month) and lower FICA % by a revenue neutral number.

Eventually then the lowest age to collect SS would be around 70-75, and the life expectancy of someone collection would be 20-30 years and not the 30-40 it is now.

4) How do we mock politicans and make people care? Great idea because it would be fun, but not sure of the impact it would actually have...

Taxes are only complex (IMO) when they change- like a stimulus rebate which was not well thought out, or when people want to change the tax structure "for the greater good". Keep the system the same, just tweak rates or bracket caps when spending needs to change- that is my simplistic (naive?) opinion.

 

[jIMOh]

Taxes are Taxes? With this logic all money collected by the government is the same. So therefore the national parks fee is the same as taxes, Never mind that the person paying derives pleasure from it. SS is called a tax. However you are purchasing a future benefit., those that do not pay do not get the benefit. So if you are talking about people paying taxes lump all those campers in the national parks in there too.

I consider SS a tax because the government is taking it from me (my earnings).

In addition the money is "added" to federal tax revenue- after all it is the SS surplus which in the 1940s-50s-60s-70s-80s which inflated federal spending, funded wars, funded other political pet projects and similar.

If the politicians did not spend it
then it would not be a tax

because they spent it in the past
it kind of gets lumped with other taxes now

 

[jIMOh]

Can someone clarify some details as to how corporations are taxed now, and how a VAT will function (in place of?) the current corporate tax?

This thread gave me some questions, and here is an example which I'd like to know the answers to:

A classic tier 1-2-3 supplier structure... Current corporate tax on this is what?? and a VAT would tax that (in addition to or instead of??) how?


Company A makes nuts and bolts and charges $1 for 100 nuts and bolts.
Company B makes castings and charges $200 for each casting
Company C buys 100 nuts and bolts and 25 castings and puts them together and charges $7000 for the assembly.
Company D buys that $7000 assembly and puts it into its product. It then sells its product for $20,000.

My assumption of current corporate tax is that they pay taxes on profits similar to how a person pays tax on income- the caps and rates are different, but the structure is the same. Is this true?

My assumption of a VAT is that its a "flat tax"- meaning 10% of the price charged
A is a tax of $.10
B is a tax of $20
C is a tax of $700
and D is a tax of $2000

with one additional caveat that the prices above would increase to accommodate the VAT of the tiers under them.

 

[robjr100]

Taxes Taxes Taxes

We pay enough taxes already.Why should the citizens always have to be responsible for the idiots in Washington DC? The useless wars,bailing out wall street and the bankers.It`s seems they`ve looted social security which was never their money to spend in the first place.Let`s not forget their brilliant idea to create a carbon tax for global warming.On and on and on.

Good god we don`t even ask for accountability to where are tax dollars go.
These bozos bring up the idea of another tax and most of us are ready to pay more.

They must sit in private and laugh at what easy prey we are as they steal everything they can.

 

[Hamlet]

Thanks for responding. I've included my responses below--

2) remove deductions... hmm? I agree it shifts, but some of the behavior it encourages is a good thing, and I would also take the stance that few people have kids just to get a tax deduction, but I would bet some people have kids to get more handouts, so all in all, that might be revenue neutral to remove kids from the tax code.

The tax code has become remarkably complex due to all the tinkering the government does to encourage behavior it wants. A lot of this is of dubious benefit to society as a whole. Take the mortgage interest deduction. I believe that the rational for this deduction is to encourage people to buy a home, with the idea that society somehow benefits from having more homeowners. However, the downside of this deduction is a massive distortion of the housing market. We have subsidized people to buy more house than they need. We have encouraged people who would be better off renting to buy instead. Overall, I believe the deduction has done more harm than good. At any rate, why should renters be subsidizing the tax bill of people who own homes? It doesn't make sense. I would prefer that the government set the rates and keep the social engineering to a minimum.

3) No idea what an energy based tax is... my thoughts on FICA is raise the age for SS one year every 6 years (so every 6 months the SS age increase 1 month) and lower FICA % by a revenue neutral number.

Eventually then the lowest age to collect SS would be around 70-75, and the life expectancy of someone collection would be 20-30 years and not the 30-40 it is now.

An example of an energy-based tax is a simple gas tax. There is a small one already. I'd like to raise that to encourage energy conservation and lower FICA to encourage employment.

I think your suggestion of raising the retirement age is going to be problematic. People are living longer, but I'm not certain that the bulk of people could actually work effectively into their 70s. Any job that is physically demanding at all is going to be a problem for a lot of 70-year-olds.

4) How do we mock politicans and make people care? Great idea because it would be fun, but not sure of the impact it would actually have...

Mostly, I want people to call bull***t when politicians start taking about tax cuts without talking about the spending cuts that need to go with them. We are being told that we can have our cake and eat it too. People need to smarten up a little.

 

[jIMOh]

Thanks for responding. I've included my responses below--

Originally Posted by jIMOh
3) ... my thoughts on FICA is raise the age for SS one year every 6 years (so every 6 months the SS age increase 1 month) and lower FICA % by a revenue neutral number.

Eventually then the lowest age to collect SS would be around 70-75, and the life expectancy of someone collection would be 20-30 years and not the 30-40 it is now.

I think your suggestion of raising the retirement age is going to be problematic. People are living longer, but I'm not certain that the bulk of people could actually work effectively into their 70s. Any job that is physically demanding at all is going to be a problem for a lot of 70-year-olds.

People "not being able to work" when they are 70 is part of what my concept "banks" on.

If a person pays into SS for 40 years (ages 20-60 or 25-65) and pays in $6200/year (12.4% of 50k is $6200). 40 years of that is $248,000.

And its calculated their "benefit" is $20k per year (I made that up, did not use a calculator) at age 70.5 (for example).

The benefit at age 66 might be 18k or 17k (for example- I made those numbers up too). Meaning the "early payout" options can also contribute to the revenue neutral position of the whole increase age thing.

People will "need" to access the money early, and that should ease the burden on the system, not add to it. If people can be "encouraged" to work another 5-10 years to delay collecting that is a double benefit for the system (less burden on system now, and they won't collect for as many years either on back end).

SS reform should do the following:
1) index age to start benefits based on life expectancy (meaning assume the average collecter might pay in 40 years and collect for 30 years and balance system that way)
2) index benefit to inflation (I believe it already does this, but when reform happens, this aspect still needs to be addressed)
3) make sure the system is revenue neutral every X years. Meaning pass the tax such that its 6.2% now, drops to 6.1% when age increases to A years and Z months, then drop to 6.0% when age increases to A years and Z+6 months... and every 5 years if system did not take as much as it paid out, the "payroll tax" is corrected "1X" to account for that variation.

**the math for 3 should be the same "flat tax" that FICA is now
4) Have a formula such that the average person contributes 40 years and withdraws for 30 years and gets $X benefit which is Y% of contributions over lifetime. As life expectancy increases, this formula needs tweaking (it would be contribute 40 years, withdraw for 35, getting z% of $X benefit which is Y% of contributions (the z factor is how much benefit people "keep" as life expectancies increase. It is probably close to a 95% factor now, but as life expectancies go up, that % will slowly decrease over time.

5) all of above should provide incentives to save for retirement- because anyone wanting to stop working at age 65 will need additional savings.

People are living longer, but I'm not certain that the bulk of people could actually work effectively into their 70s.

This will come across as self righteous (I assume) but retirement at 65 is NOT a right. You EARN retirement.

If a better solution is needed, allow private citizens to buy into a government pension plan (for example every $1000 of contributions buys you a 1 credit, and every X credits gives you $Y of income.

If the government pension plan above gave a 3% return and was only invested in treasuries, it could be considered an "option" to essentially buy up a SS benefit they have more control over.

 

[Hamlet]

From my standpoint, the purpose of SS is to keep people who have not planned for their retirement from becoming homeless or holding up liquor stores when they reach the end of their lives.

We don't need a better solution. We have it, and it is called private savings and investment.

SS needs to provide a safety net for the fairly large group of people that will not plan for their retirement and will not be able to work in any meaningful way past 65.

The amount of that safety net may need to be trimmed back to an affordable amount, but I think we are stuck with the basic system.

This will come across as self righteous (I assume) but retirement at 65 is NOT a right. You EARN retirement.

If a better solution is needed, allow private citizens to buy into a government pension plan (for example every $1000 of contributions buys you a 1 credit, and every X credits gives you $Y of income.

If the government pension plan above gave a 3% return and was only invested in treasuries, it could be considered an "option" to essentially buy up a SS benefit they have more control over.

 

[dex]

From my standpoint, the purpose of SS is to keep people who have not planned for their retirement from becoming homeless or holding up liquor stores when they reach the end of their lives.

We don't need a better solution. We have it, and it is called private savings and investment.

SS needs to provide a safety net for the fairly large group of people that will not plan for their retirement and will not be able to work in any meaningful way past 65.

The amount of that safety net may need to be trimmed back to an affordable amount, but I think we are stuck with the basic system.

Go back to the history of the SS. The idea came about during the depression because of some of the old being destitute. But it ultimately, was not the safety net you describe. That is why you are assigned a SSN it was to be your money. Of course it got perverted along the way.

As a side note - it is surprising that no one on this board has mentioned phasing out the current way SS$ is invested to a Bond/Stock market based investments. Simply putting SS$ into 30 treasury bonds from the start of your working life would outperform the current returns for SS.

Another aspect not mentioned is the racial disparity in SS. Look at the life expectations for white men or women vs black men or women. .

 

[charlie]

Would a VAT or NST be included in the gov's calculation of CPI? If so, it would give a nice one year boost to the income from my inflation linked bonds.

Cheers,

charlie

 

[jIMOh]

From my standpoint, the purpose of SS is to keep people who have not planned for their retirement from becoming homeless or holding up liquor stores when they reach the end of their lives.

We don't need a better solution. We have it, and it is called private savings and investment.

SS needs to provide a safety net for the fairly large group of people that will not plan for their retirement and will not be able to work in any meaningful way past 65.

The amount of that safety net may need to be trimmed back to an affordable amount, but I think we are stuck with the basic system.

Why does the safety need to begin at age 66 or 67?
Why not age 68 or 70 or 72 or 74?

I agree we have the system in place
however the economics of that system do not balance right now (we take in more than we spend, and we do what with the excess? when we spend more than we take in we will do what with the taxes or benefits?

so we have a system in place which is broken, I am suggesting it be modified some.

 

[jIMOh]

As a side note - it is surprising that no one on this board has mentioned phasing out the current way SS$ is invested to a Bond/Stock market based investments. Simply putting SS$ into 30 treasury bonds from the start of your working life would outperform the current returns for SS.

Another aspect not mentioned is the racial disparity in SS. Look at the life expectations for white men or women vs black men or women. .

LOL
two things

you said SS has a return
and
you said SS and life expectancy

neither were factored into original formula, and IMO neither are accounted for today either.

The way I see SS is it should be zero sum
payroll receipts should be equal to benefits paid
every year

every 5 years balance the checkbook (if IRS takes in more than it pays, lower the tax... if IRS has spent more than it took in, lower the benefits or raise age to start SS)

 

[Koolau]

so we have a system in place which is broken, I am suggesting it be modified some.

The "fixes" are many and varied. Any accounting student could "fix" the system (several on the board have offered ways to 'make it come out even'). The problem is political will. No political program (and let's face it, all government programs are now political) can be changed EXCEPT to add more benefits or lower taxes. Otherwise, there is too large a political price to pay.

Sorry to say it, but I no longer blame the elected representatives for this. I blame us. We are getting the government we deserve. When WE eventually decide that something needs to be done, it will get done. No politician is going to step out onto the tracks and stick his finger on the 3rd rail again. They'll all wait until the public demands a solution. Now all they are hearing is either "I'm not getting enough" or "I'm paying too much". So no politician is going to say "I have the perfect solution - I'll make ALL of you unhappy with me!"

Just my 2 cents worth, IMHO, YMMV, etc.

 

[Hamlet]

I agree. The sad fact is that the politicians have given the people of the US exactly what they've continually asked for.

Unless we as a nation grow up and realize that we can't have lower taxes with continually higher spending we are in serious trouble.

Sorry to say it, but I no longer blame the elected representatives for this. I blame us. We are getting the government we deserve. When WE eventually decide that something needs to be done, it will get done. No politician is going to step out onto the tracks and stick his finger on the 3rd rail again. They'll all wait until the public demands a solution. Now all they are hearing is either "I'm not getting enough" or "I'm paying too much". So no politician is going to say "I have the perfect solution - I'll make ALL of you unhappy with me!"

Just my 2 cents worth, IMHO, YMMV, etc.

 

[harley]

Since the Senate has voted so overwhelmingly against it - Senate overwhelmingly rejects idea of Value-Added Tax at McCain’s prompting | The Daily Caller - Breaking News, Opinion, Research, and Entertainment - I'm sticking with my original forecast. VAT tax within 10 years.

 

[Hamlet]

Because many people start having real difficulty working past the mid-sixties, especially the poorer segments of society that depend on SS the most.

If you work in the trades or construction, working past 65 is just not going to happen for most people. I can't see a lot of waitresses or nurses working into their 70s.

My grandmother is an exception that proves the rule. She worked part-time in nursing into her late 70s. She has a story about being mistaken for a patient at the nursing home she worked at .

I think a straight-forward trimming of benefits makes more sense than raising the retirement age, unless we continue to allow for a reduced benefit retirement at 62 or so and just use the higher retirement age as a way to scale back the benefits for the people retiring earlier.

Why does the safety need to begin at age 66 or 67?
Why not age 68 or 70 or 72 or 74?

 

[frequenttraveler]

I think high inflation is more likely, as raising taxes takes congressional courage.

Um, they have already raised taxes on higher income earners, and are preparing the groundwork to get the rest of us. There simply aren't enough dollars in the high income brackets to pay trillions of dollars in spending/deficits.

I would say it takes WAY more courage to REDUCE taxes than to raise them.

And I would also absolutely say that it is very possible that Roth holders get screwed. They did it with SS, didn't they? Taxing 85% of SS, not even allowing you to recover your costs. Insanity.

Jim