Deficit panel leaders' plan curbs Social Security and Other Sacred Cows

[ERD50]

As far as SS goes... most americans that worked paid into it(along with their employer). It would not be reasonable to just take it away (regardless of their wealth).

I think this is at the heart of it. In a way, it's just semantics, but I do think it would make a difference if it was set up as strictly a welfare/safety-net program paid out of general taxes. But once you point out that certain $ went into it (and the more you made the more went in), people will expect to get something for it. Most of us get pretty worked up over perceived "un-fairness", it's human nature I guess, and this fans the flames.

The American way will be to tax income and ultimately to recapture it at the end (estate taxes). IOW... you can use it while you are alive... but in the end, ...

Maybe you guessed I disagree? Yep, they're dead, so screw their intentions of what happens after death. Throw their body in the compost pile, they won't know they aren't in the family burial plot. Take their car, their clothing - they can't use 'em now. We wouldn't want the rest of the family to dispose of any of that per the deceased wishes. They're dead, screw 'em, too late to hire a team of lawyers now. Stupid dead people.

edit/add: And if it were the "American Way", our Founding Fathers would have put it in the Constitution. Heck, they didn't even put income tax in there, or even hint at one group taking care of another.

Tax simplification and tax fairness are often at odds with each other. .

And tax complications and tax fairness are very often at odds with each other. Wow, there must be a jillion opportunities for tax simplification that have nothing to do with 'fairness', or would improve it - let's not let that stop us.

I'll go so far as to say even some of the worst problems may need to be phased in/out to be "fair". If you were able to take advantage of some odd tax law, yanking it from you could create a problem for you, and you were just following the rules (playing the game). But phasing it in over 5 years or so, could give time to adjust.

-ERD50

 

[scrabbler1]

I think this is at the heart of it. In a way, it's just semantics, but I do think it would make a difference if it was set up as strictly a welfare/safety-net program paid out of general taxes. But once you point out that certain $ went into it (and the more you made the more went in), people will expect to get something for it. Most of us get pretty worked up over perceived "un-fairness", it's human nature I guess, and this fans the flames.

This is why I object to those (mainly on the Left) who suggest eliminating the wage cap on FICA (SS only, not Medicare) taxes. It is a terrible idea. The same cap on wages subject to FICA also caps SS benefits which is something those on the Left never mention in their arguments. If you eliminate the cap on wages and also on benefits (not what those on the Left suggest) then it won't save the SS system as much, if anything, while giving Bill Gates an uncapped SS benefit check every month. If you eliminate the cap on wages but not on benefits then you are turning SS into a welfare-type program, basically saying to those who pay SS taxes on those excess wages, "Thanks for the SS taxes, but screw you on any added benefits tied to those excess wages."

And tax complications and tax fairness are very often at odds with each other. Wow, there must be a jillion opportunities for tax simplification that have nothing to do with 'fairness', or would improve it - let's not let that stop us.

I agree. My remark was directed at those (not necessarily here in the Forum) who often cry out, "We need to make the tax code fairer
AND simpler!"

I'll go so far as to say even some of the worst problems may need to be phased in/out to be "fair". If you were able to take advantage of some odd tax law, yanking it from you could create a problem for you, and you were just following the rules (playing the game). But phasing it in over 5 years or so, could give time to adjust.

-ERD50

Again, I agree. An example of this back in the 1980s following the 1986 Tax Reform Act was to phase out the deductibility of personal (non-mortgage) interest such as credit card and student loan. It did not go from 100% deductibility to zero in one shot but instead became partially deductible for a few years before disappearing. It was one reason I paid off my student loans (early) in 1987.

 

[jimnjana]

I'm just happy cutting expenses is being discussed. I think politicians that oppose any budget cutting initiatives that move forward for a vote, do so at their own political risk.

 

[samclem]

This is why I object to those (mainly on the Left) who suggest eliminating the wage cap on FICA (SS only, not Medicare) taxes. It is a terrible idea. The same cap on wages subject to FICA also caps SS benefits which is something those on the Left never mention in their arguments. If you eliminate the cap on wages and also on benefits (not what those on the Left suggest) then it won't save the SS system as much, if anything, while giving Bill Gates an uncapped SS benefit check every month.

Eliminating the cap on wages and having unrestricted benefit checks would still result in a very large increase in SS tax revenues for a fairly small increase in total benefit check payouts. The payout schedule is highly progressive, so that high wage earners get very little "payback" for what they put in. And, the higher the "cap" is, the more it is a wealth transfer system for the poor--welfare. But, a softer welfare that isn't means tested--everybody gets something, and those who paid a lot get slightly more back.

 

[Gone4Good]

I might be wrong by I'm under the impression that if 14 of the 18 members of the commission approve the proposal it goes to the congress for an up-or-down vote without amendment.

Anyone else read this?

There is no law that requires an up or down vote. This is a commission established by executive order, it has no binding power on Congress.

And even if prior Congressional leadership agreed to those terms, what does the new leadership say?

 

[Gone4Good]

I wonder how the recent election results will enter into the mix. The Congressional Democrats are, as a group, more liberal now than before the election and, from the sound of their leadership, not in a mood to accept the big spending cuts.

I assume it was just an oversight that you didn't mention how the incoming Republicans are even more dogmatic with respect to tax increases; with many already saying that the proposed $2 spending cuts for every $1 of tax increases relies too heavily on revenue gains.

For what it's worth, the "liberal" NYT Op-Ed page came out with a surprisingly strong endorsement for the commission recommendations. Maybe there is hope for an adult response after all.

 

[Texas Proud]

Actually the 15/30K standard deduction is one of my favorite things about the proposal. One of the goals if the reform is to broaden the tax base I think it does this. Right now the median household income is 45K and approximately 30% of household incomes under 30K per year. Assuming that most all deduction other than the 1K tax credit per kid are wiped out I would think this would drop the number who don't pay taxes from the 47% rate to a number in the 30-35% rate, which looks like an improvement to me.

The reason I like the high standard deduction is really simplifies taxes for the vast majority or Americans and discourages the minor cheating. E.g. claiming that underwear you donated is worth $5/pair or fudging on your prescription cost etc. If you have to get $30,000 worth of deductions people will just claim the standard deduction and move on.

BTW, as one of the 47% of American who haven't paid federal (or state) taxes for the last few years, I still feel an obligation to reduce the debt, even if it means reduced benefits or future higher taxes.

Why not get rid of all deductions

I agree with you that if there is an incentive to get a deduction people will fudge... or do what I do and double up (I pay two years of property tax in a single year to max my deductions)...

But if NOTHING is deductible, then you don't have to worry about it either... or give a standard dedection and everybody has to use that amount no matter what...

 

[Bestwifeever]

I can't wait for the mortgage interest deduction to be zapped so we can revisit the pay off the mortgage question here.

 

[REWahoo]

I can't wait for the mortgage interest deduction to be zapped so we can revisit the pay off the mortgage question here.

Yep. Nothing like beating a resurrected horse to death...again, and again, and again...

 

[W2R]

Yep. Nothing like beating a resurrected horse to death...again, and again, and again...

Let me help you....

 

[Alan]

I can't wait for the mortgage interest deduction to be zapped so we can revisit the pay off the mortgage question here.

What they did in the UK (in the early 80's I think) was to set a maximum amount of mortgage interest that was deductible and not link it to inflation. Then in recent years it was a lot less political pain to remove that deduction altogether.

 

[scrabbler1]

I assume it was just an oversight that you didn't mention how the incoming Republicans are even more dogmatic with respect to tax increases; with many already saying that the proposed $2 spending cuts for every $1 of tax increases relies too heavily on revenue gains.

For what it's worth, the "liberal" NYT Op-Ed page came out with a surprisingly strong endorsement for the commission recommendations. Maybe there is hope for an adult response after all.

Even if the ratio of proposed spending cuts to tax increases were 3:1 or 4:1, the Republicans would scream bloody murder because the ratio is anything more than n:0. The Republicans, despite their seemingly inclusive "everything is on the table" approach, are simply intransigent, beyond stubborn, when it comes to any tax increase no matter how small it is compared to spending cuts.

And samclem, I don't oppose a one-time, moderate increase in the SS wage cap (I have heard proposals to raise it to ~$140k) if it also increases the cap on SS benefits associated with the same cap. I agree it would end up helping the balance sheet of SS for the reasons you listed - the progressivity of the benefit formula (i.e. Bend Points) - even if it is less than what would occur if the cap were not also raised on benefits.

 

[samclem]

I assume it was just an oversight that you didn't mention how the incoming Republicans are even more dogmatic with respect to tax increases; with many already saying that the proposed $2 spending cuts for every $1 of tax increases relies too heavily on revenue gains.

For what it's worth, the "liberal" NYT Op-Ed page came out with a surprisingly strong endorsement for the commission recommendations. Maybe there is hope for an adult response after all.

Maybe. I'm sure the incoming Republicans are going to issue statements condemning the tax increases, but I was referring to the leadership in both parties. I can't find any quotes from Rep. Boehner (which may be telling in itself), Speaker Pelosi branded the "proposals" (they aren't) "Simply unacceptable."

When the NYT and the Washington Examiner issue a joint editorial praising a particular package and talking to ther readers like adults, we'll know we're making progress. And that the end times are near.

 

[ERD50]

As far as tax simplification, here's a link to the reforms proposed back in 2005 by a bi-partisan committee (I guees we can't get a NON-partisan committee, so BI-partisan is the next best thing?).

http://www.google.com/url?sa=t&sour...c4Cn0wEAoRZvdDB6A&sig2=FiA6wqEpTPxmOOD4SAGplw

I haven't read it in a while, I just had the Executive Summary saved, and haven't compared it to anything in this write up. But my recollection was that while I prefer a scrap it and start over approach, the proposals were pretty good. They were at least aware of some of the conflicting, counter-intuitive, over-lapping codes.

-ERD50

 

[FreqFlyer]

Look on the bright side, at least we're not facing a deficit of 32% of GDP this year like the Ireland. I think the US is about 9%

 

[samclem]

Indications of how the scrimmage lines will form up on these issues: Accomodation from members of the majority party in the Senate, digging in of heels by members of next term's minority party in the House. From "Democrats Pulled in Different Directions on Taxes, Deficit" in The Hill:

Fissures within the Democratic Party that were kept at bay by the midterm elections have resurfaced this week thanks to emerging debates over taxes and deficits.

Liberal and centrist Democrats are staking out disparate positions on fiscal issues in light of a draft report issued Wednesday by the chairmen of President Obama's fiscal commission.
. . .

A key centrist, Senate Budget Committee Chairman Kent Conrad (D-N.D.), on Thursday championed the recommendations made by fiscal panel co-chairmen Erskine Bowles and Alan Simpson. Their report called for major tax reforms and spending cuts, in addition to entitlement changes that would result in reduced Social Security benefits for some people.

Liberals have roundly condemned the report. One of the strongest statements came from outgoing House Speaker Nancy Pelosi (D-Calif.), who called the recommendations "simply unacceptable."

But Conrad, a centrist in a position to shape the debate over the fiscal commission's final proposals in the Senate, challenged critics to come up with something better.

"Instead of shooting this down, propose an alternative; but one that does as good a job as this one does in getting us back on a sound fiscal course," he said on ABC's "Good Morning America."

. . . centrists are also in a pivotal position to help determine how lawmakers will proceed with the final recommendations of the fiscal commission, which are due Dec. 1. Democratic and Republican leaders have promised to hold an up-or-down vote on any deficit reduction proposals supported by 14 of the commission’s 18 members.

I don't know if the panel will vote on all their recommendations as a package, or if each recommendation will have to stand an individual vote. Likewise for any vote in the House and Senate--as a package or one at a time?

 

[Gone4Good]

Indications of how the scrimmage lines will form up on these issues: Accomodation from members of the majority party in the Senate, digging in of heels by members of next term's minority party in the House.

Then it's a good thing that next term's majority party in the House rode to victory just seven short days ago on a pledge to reduce the deficit . . . should be interesting.

 

[clifp]

Why not get rid of all deductions

I agree with you that if there is an incentive to get a deduction people will fudge... or do what I do and double up (I pay two years of property tax in a single year to max my deductions)...

But if NOTHING is deductible, then you don't have to worry about it either... or give a standard dedection and everybody has to use that amount no matter what...

I think Option 2 basically gets rid of all the misc. itemized deductions. There is certainly a class of deduction related to the production of income that you can't or shouldn't get rid. So for instance you can't tax rental income without allowing deductions for interest and repairs. Same thing is true if you have an ebay business which basically involves going to garage sales buying items fixing them up a reselling them on you have to allow the person to deduct the costs of buying and fixing the items.

 

[clifp]

Indications of how the scrimmage lines will form up on these issues: Accomodation from members of the majority party in the Senate, digging in of heels by members of next term's minority party in the House. From "Democrats Pulled in Different Directions on Taxes, Deficit" in The Hill:


I don't know if the panel will vote on all their recommendations as a package, or if each recommendation will have to stand an individual vote. Likewise for any vote in the House and Senate--as a package or one at a time?

I thought it was as a package with an up or down at least in the senate, similar to the BRAC recommendations. Frankly it is the only way to do it, since other wise we will end up with lower tax rates, higher standard deduction, while maintain all of the deductions, and higher SS benefits for poor people, along with promises to make spending cuts in a future generation. Although, I imagine they will raise the full retirement age to 69 long after we are all dead.

 

[Texas Proud]

I think Option 2 basically gets rid of all the misc. itemized deductions. There is certainly a class of deduction related to the production of income that you can't or shouldn't get rid. So for instance you can't tax rental income without allowing deductions for interest and repairs. Same thing is true if you have an ebay business which basically involves going to garage sales buying items fixing them up a reselling them on you have to allow the person to deduct the costs of buying and fixing the items.

sure... I guess I should have said 'itemized deductions'.... and if they do say we should get rid of them I did not hear it... (I have not read the report)

The ones you mention are on sch C and relate to business deductions...

 

[MasterBlaster]

What they did in the UK (in the early 80's I think) was to set a maximum amount of mortgage interest that was deductible and not link it to inflation. Then in recent years it was a lot less political pain to remove that deduction altogether.

In the US the maximum deductible mortgage is interest on principle of $1MM ($500k for singles). That doesn't go up with inflation. So if you can get a 5% interest rate then the maximum dedection per year is $50k ($25k for singles).

There is also the extra deduction of interest on $100k ($50k singles) second loans.

 

[chinaco]

....
Maybe you guessed I disagree? Yep, they're dead, so screw their intentions of what happens after death. Throw their body in the compost pile, they won't know they aren't in the family burial plot. Take their car, their clothing - they can't use 'em now. We wouldn't want the rest of the family to dispose of any of that per the deceased wishes. They're dead, screw 'em, too late to hire a team of lawyers now. Stupid dead people.

edit/add: And if it were the "American Way", our Founding Fathers would have put it in the Constitution. Heck, they didn't even put income tax in there, or even hint at one group taking care of another.

...

-ERD50

By "American Way"... I meant the prevailing practice.

It is ok to disagree... It is America.

I do not think the estate tax is intended to be something that "screws" people. Although, the recipients (of less) probably feel they were...

They can pry it out of your warm live hand or your cold dead one. Pick your choice.


I intend to spend mine! If I can help it... all they will find is an empty hand.

 

[Alan]

In the US the maximum deductible mortgage is interest on principle of $1MM ($500k for singles). That doesn't go up with inflation. So if you can get a 5% interest rate then the maximum dedection per year is $50k ($25k for singles).

There is also the extra deduction of interest on $100k ($50k singles) second loans.

Thanks for the clarification. The only house I bought in the US was a 5 bed, 3,500 sq ft home for $110K (in 1992), so if I knew what the max was, I've obviously forgotten about it as it was way above what mattered at the time.

The last house we bought in the UK was in 1986 and it cost £45k. At the time the maximum principle that qualified for the interest deduction was £30k.

I think getting rid of the interest deduction on $1MM homes will be very difficult, politically, at this time.

 

[jdw_fire]

This is why I object to those (mainly on the Left) who suggest eliminating the wage cap on FICA (SS only, not Medicare) taxes. It is a terrible idea. The same cap on wages subject to FICA also caps SS benefits which is something those on the Left never mention in their arguments. If you eliminate the cap on wages and also on benefits (not what those on the Left suggest) then it won't save the SS system as much, if anything, while giving Bill Gates an uncapped SS benefit check every month.

Eliminating the cap on wages and having unrestricted benefit checks would still result in a very large increase in SS tax revenues for a fairly small increase in total benefit check payouts. The payout schedule is highly progressive, so that high wage earners get very little "payback" for what they put in. And, the higher the "cap" is, the more it is a wealth transfer system for the poor--welfare. But, a softer welfare that isn't means tested--everybody gets something, and those who paid a lot get slightly more back.

or, like i suggested in another thread, remove the tax cap but add another knee at about the current cap level, which when computing the benefit only adds 5% (instead of the current 15%) of the income over that knee to the benefit computation.

 

[youbet]

The reason I like the high standard deduction is really simplifies taxes for the vast majority or Americans and discourages the minor cheating. E.g. claiming that underwear you donated is worth $5/pair or fudging on your prescription cost etc.

Hey! How did you get access to my tax forms?