Retiree Entitlements ‘Undermine’ Everything Else

[JoeWras]

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Originally Posted by Bluetrekrider And now? Illinois is broke! Just a joke of a state as far as fiscal management.

It saddens me greatly. I grew up as a proud Illinoisan. My mom even helped participate in some citizen committees to help draft their new constitution in the late 60s. We all participated in the civil process.

However, in the 80s, mom and dad got disillusioned with their "return on investment". As dad explained it, he voted for every improvement requiring money presented to them. By the time they hit their 60s, they saw negative results and they got disillusioned. They felt it wasn't being managed right.

I moved away, and saw a different way of managing affairs in other states. Not perfect, but different and a little more responsible.

Recently, I spent some time back in my native state and was constantly in distress by the news. It just really hurt me to hear about this. My friends and family don't seem to be as distressed, ironically. They see it as business as usual or something. You know, the "Chicago way" or something. Having the perspective of being away, I disagree. It is not usual.

So, I've pretty much made up my mind to not move back, ever. I don't want to pile on my native state, but something has to happen there. You are not going to be attracting outside money, talent and citizens if this continues. The state could spiral down quickly.

[pb4uski]

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Originally Posted by donheff While the proportion of smokers among the low income is high it is not most and you have it exactly backwards on food "choices." A lot of people have studied food costs trying to figure out the obesity epidemic. They find that it is much more costly to eat whole fresh foods than processed foods. Our government subsidizes the sugar, corn (HFCS), and wheat that goes into those cheap boxes, cans and bottles making them the frugal choice for poor people. We smart, rich people can afford to buy fresh vegetables and lean cuts of meat while we sneer at the poor, dumb neer-do-wells getting fat on the crap we subsidize for them.

While I understand your point, I don't think it necessarily has to be that way. You are right that the food buying habits of the poor tends to lead them to processed foods that are cheap but are unhealthy. But these processed foods are also convenient (open the can or box and heat it up in a lot of cases).

It is possible to buy and cook fresh food that is nutritious on a low budget. My grandmother's generation did it out of necessity. DW's family did it out of necessity. DW has taught classes on the subject to low income clients. It can be done, but it takes work and in many cases moving people out of their comfort zone to follow a recipe to cook a meal rather than open the can or box and heat it up.

As an example, I just finished my breakfast today of a bowl of cream of wheat with a cut up banana mixed in. I'm pretty sure the ingredients were much less than a dollar, but I had to boil some water with a pinch of salt and mix in 3 tbsps of cream of wheat and stir for a couple minutes and cut up a banana. Healthier and cheaper than pop tarts or eggos that many kids get for breakfast because they are easy to prepare and one doesn't have to wash a pan.

[Independent]

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Originally Posted by Khufu It's correct that the 1983 Greenspan Commission set the level of labor income subject to the payroll tax to be 90%. Currently only 83.2% is taxed and that number is predicted to drop to 82.5%, worsening the funding problem. The Tax Max charts in the first link of your post show that while the percentage of workers who earn over the payroll tax cap has remained stable at about 6%, the amount of earnings has increased more than that. This is another observation of the upward distribution of income that has increased inequality in America. Another way of explaining the same effect is the fact that the portion of GDP held by companies as earnings relative to the portion received by workers has increased. Still another way of stating the same effect is to note that real wages for the bulk of workers have stagnated for 30 years even in the face of productivity gains. For this reason returning to the 90% level of payroll taxation instituted by the Greenspan Commission would not be adequate as you point out. Had the wages of American workers kept pace with productivity gains more of the increase in output would have been available to fund SS as Dean Baker argues here: The Impact of the Upward Redistribution of Wage Income on Social Security Solvency | CEPR Blog The payroll tax is a particularly regressive tax. Any of us who earned over the cap paid the same dollar amount every year as Warren Buffett. Buffett doesn't think that is fair and neither do I. The widespread practice of paying executives with stock options also moved income income to escape the payroll tax. Therefore, my own view is that the payroll tax cap should be removed completely and, if that does not fully solve the funding problem, an SS tax should be instituted on forms of income not currently subject to the payroll tax. The founders of the SS system in the 30's and the Greenspan Commission in 1983 never envisioned an America with the levels of inequality that currently prevail. Such inequality can make it impossible to maintain SS which would bring back levels of poverty among the elderly not since since the Depression. In fact, what is needed now is to expand SS to replace the level of support that has disappeared with the decline of private pensions.

Okay, that's consistent with the numbers. I wanted to point out that even if we had indexed the payroll tax cap at 90% of earnings, we'd still have a significant shortfall. Even if we entirely eliminate the cap, we have some shortfall. (and that's a substantial change from historic SS practice)

A politician who agrees with the bold would need to specify what income, other than labor earnings, he intends to tax.

FTR, I have to agree with mpeirce. If we get to the point of taxing non-labor income, it would be better to roll SS into the general fund and simply pay it out of income taxes.

[ChiliPepr]

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Originally Posted by Khufu The payroll tax is a particularly regressive tax. Any of us who earned over the cap paid the same dollar amount every year as Warren Buffett.

This is true, but come the time you retire, you will be receiving the same benefits as Warren Buffett. Social Security is not a "tax" in the sense of the word, it is what you pay to receive benefits after you reach retirement age.

[mickeyd]

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Social Security is not a "tax" in the sense of the word, it is what you pay to receive benefits

If the government confiscates funds from you, it's a tax in every sense of the word. For example, they tax every gallon of gasoline that we pump and supposedly use that tax "for our benefit" to build roads and bridges. Or, so I have been lead to believe.

[travelover]

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Originally Posted by mickeyd If the government confiscates funds from you........

It's like when my friend lost his wallet to knife wielding kids in St. Croix. The police said, " Did you give them your wallet or did they take it?"

[Mulligan]

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Originally Posted by travelover It's like when my friend lost his wallet to knife wielding kids in St. Croix. The police said, " Did you give them your wallet or did they take it?"

Since my opinion won't change anyone's mind ( though I agree with pb4's line of thinking) I will comment on this... That is why I will never go to St.
Croix. In fact, I get on the first available shuttle from airport and sprint to the other end of St. Thomas as fast as I can, and ferry over to St. John where I actually feel safe.

[scrabbler1]

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Originally Posted by ChiliPepr This is true, but come the time you retire, you will be receiving the same benefits as Warren Buffett. Social Security is not a "tax" in the sense of the word, it is what you pay to receive benefits after you reach retirement age.

Thank you. As I debated with khufu a few months ago, the same cap on wage earnings is a cap on benefits based on those wage earnings. Wage earnings over the cap result in no additional SS benefits. That is why Buffett's SS benefits will be small compared to his wage income. That is why nonwage income is not subject to the SS tax. Leave the cap alone.

[Independent]

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Originally Posted by scrabbler1 Thank you. As I debated with khufu a few months ago, the same cap on wage earnings is a cap on benefits based on those wage earnings. Wage earnings over the cap result in no additional SS benefits. That is why Buffett's SS benefits will be small compared to his wage income. That is why nonwage income is not subject to the SS tax. Leave the cap alone.

I'm not sure how Khufu responded. He could have said "Fine, remove the cap and use the entire earnings to calculate benefits according to the current formula".

Because the current benefit formula has the 15% band at the top, SS makes a "profit" on those extra dollars (i.e. additional taxes exceed additional benefits). This doesn't close all the gap, but it contributes significantly. Long Range Solvency Provisions

[CH]

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Originally Posted by Khufu ...The payroll tax is a particularly regressive tax. Any of us who earned over the cap paid the same dollar amount every year as Warren Buffett. Buffett doesn't think that is fair and neither do I. ...

At first the tax itself may be regressive, but the payouts are tilted to favor lower earners so it is not really regressive. "--Lower-income workers come out ahead. Low-income workers enjoy higher rates of return by design, because Social Security's benefit formula is weighted toward lower-earning beneficiaries and their payroll tax contributions will be relatively lower. A very low-income couple born in 1943 will receive a 6.79 percent annual return, compared with 3.92 percent for their high-earning counterparts." When the subject of the 47% who pay no income tax comes up, it is often truly stated that the 47% pay payroll taxes. What is usually not stated is they are receiving a much better return than the rest of us, so I don't buy the belly-aching.

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Originally Posted by Khufu The founders of the SS system in the 30's and the Greenspan Commission in 1983 never envisioned an America with the levels of inequality that currently prevail. Such inequality can make it impossible to maintain SS which would bring back levels of poverty among the elderly not since since the Depression.

The bigger part of the problem is the demographics issue. This has been on my radar for decades, and I kept wondering why congress did not address it.

Another part is the longevity issue, which would imply the age to draw social security should gradually be raised, in a way that gives people plenty of time to plan. Maybe the poor do not live as long. Maybe left handed women live longer and should retire later than the rest of us. We are all in this together and the age increase needs to apply to everyone. Using that same logic, the new health care law is not fair because rates for younger people are subsidizing those of older people, and sick people pay the same as healthy people. Life is not always fair.