social security proposal

[Neill]

(he's retired)

Some people explain to me in great detail how generous they would be if they won the lottery. He was actually looking back to the past and saying how he wouldn't mind paying something he isn't going to pay.
I am also not working and so wouldn't pay it but I think I understand why those who would could change their ways dramatically.

My worry on the whole idea is that SS is already not a good plan if you look at it in terms of return on investment. Making it more progressive (hell for $100 in covered income after the last bend point you get less that a 4c increase in benefits) will make it a worse plan for those with more earnings. Investing my contributions in inflation protected securities (essentially) albeit with longevity insurance doesn't seem like a winning strategy. Few here invest like that.
The evidence is clear that savings rates have been depressed by SS so increasing the SS tax rate seems like a bad idea to me.

 

[karen1972]

Id still be curious if someone ran a study on a proposal I'd seen awhile back to fix SS in which they got rid of the spousal rules. ie. if your married 50% of your SS would get credited to your account, 50% to your spouses. Then everyone would have their own account, there would be no claiming against your spouses and no one would have to worry about how long you were married to someone else, that you can marry multiple times and then who collects what.. it seems to me it would not only be more fair, easier to manage, but would also potentially save a lot of money in SS payouts and administration.

 

[Big_Hitter]

My worry on the whole idea is that SS is already not a good plan if you look at it in terms of return on investment. Making it more progressive (hell for $100 in covered income after the last bend point you get less that a 4c increase in benefits) will make it a worse plan for those with more earnings. Investing my contributions in inflation protected securities (essentially) albeit with longevity insurance doesn't seem like a winning strategy. Few here invest like that.
The evidence is clear that savings rates have been depressed by SS so increasing the SS tax rate seems like a bad idea to me.

if you die or become disabled it's a great ROI - plus people like my 88 year old father (who was a maximum earner his entire career) got a GREAT ROI (back when I calculated it 25 years ago when I was studying for one of the exams)

but yes, going forward, the ROI isn't that great for most of us but that's social insurance for ya

i'm not sure it would take that much of a one-time bump in the TWB to right the ship, maybe a few grand, maybe 10 or so... I'd have to look at the analysis

but it would be politically difficult, based on the points you made especially since private DB plans have fallen out of favor; we have a huge problem facing our country right now via a pending retirement crisis so feathering in the FRA based on income would be much easier, IMO

 

[Big_Hitter]

Id still be curious if someone ran a study on a proposal I'd seen awhile back to fix SS in which they got rid of the spousal rules. ie. if your married 50% of your SS would get credited to your account, 50% to your spouses. Then everyone would have their own account, there would be no claiming against your spouses and no one would have to worry about how long you were married to someone else, that you can marry multiple times and then who collects what.. it seems to me it would not only be more fair, easier to manage, but would also potentially save a lot of money in SS payouts and administration.

probably not a bad idea - i really don't know the marriage rules all that well; i just try and stay married

 

[samclem]

Id still be curious if someone ran a study on a proposal I'd seen awhile back to fix SS in which they got rid of the spousal rules. ie. if your married 50% of your SS would get credited to your account, 50% to your spouses.

Or, end the subsidies for married couples (spousal benefits--no matter how they are accrued/counted) that are paid for by participants who are single. A wage earner who is married and earning "benefits for two" would pay in at a higher rate. That, together with "year-by-year accrual (to stop people from paying the single rate for 29 years and getting married 1 year before FRA to take advantage of the spousal benefits) could help put the program on a more secure financial footing.

 

[pb4uski]

[MOD EDIT]My point is that high income earners see a large increase in marginal rates. We know decisions are driven by marginal rates. It's a big deal. We would be increasing the marginal rate by 12.6% and I think that's a lot.

I think your math is wrong. With the current limit, someone in the 39.6% tax bracket pays after the phaseout (including employer match as you prefer to do) 52.9% (39.6% + 6.2%*2 + 0.9%). If the limit was removed, they would pay the 55.8% in your prior post. So the impact of repealing the limit would be a 5.5% increase (from 52.9% to 55.8%... 55.8%/52.9% = 105.5%), NOT 12.6%. How do you get the 12.6%?

So my point is wrong because not a lot of people pay the rate? Well the 12.6% applies to other rates too. It's not an argument to say it doesn't matter because few people are affected.

No, your point was wrong because you were suggesting that someone would simply quit working if their marginal tax rate increases and in looking at marginal tax rates you need to look at what the decision-maker (in this case the employee) pays, not what the government collects from the employee and the employer. I think most people would agree that a marginal rate of 46.7% is as much of a disincentive to work as a 48.15% marginal rate.

So it's not a tax because the government says that the paystub should look different as we pretend the employer pays the tax? We all know the employee pays the tax.

I never said that it is not a tax... I said that in making a decision to work or not that the employee will look at the impact to them and the impact on the employer is not part of the decision analysis. What is your logic to claim that "We all know the employee pays the tax"?

It would add 12.6% to the tax bracket. Pretending some of it isn't there won't change that.

Again, please provide the calculation for the 12.6% increase in the marginal tax rate. A tax bracket is what applies to a taxpayer, not what the government collects and in this case there are two taxpayers, the employee and the employer and they each have a marginal tax rate.

So now your saying that you don't mind paying it where your marginal rate likely might not be that large. After all you have said not many people pay those high rates. So nobody else can object or make decisions on this high rate because you blessed it in all your goodness.

I respect your right to have an opinion... I just think you are wrong. As a high income employee, taxes were a nuisance but it is what it is and I actually didn't notice when OASDI phased out of my paycheck so I would not have noticed if it didn't phase out. Since I had virtually no control over my taxes I didn't focus much on marginal tax rates... they were what they were... for me it had zero impact on my decision to continue work or not. I think for most people at those lofty levels many other things are part of the equation and marginal tax rates are not critical to the decision and we can just agree to disagree on that.

 

[Independent]

Id still be curious if someone ran a study on a proposal I'd seen awhile back to fix SS in which they got rid of the spousal rules. ie. if your married 50% of your SS would get credited to your account, 50% to your spouses. Then everyone would have their own account, there would be no claiming against your spouses and no one would have to worry about how long you were married to someone else, that you can marry multiple times and then who collects what.. it seems to me it would not only be more fair, easier to manage, but would also potentially save a lot of money in SS payouts and administration.

I've always liked that idea. It's so much simpler than our current rules.

If most women worked outside the home back in 1940, we might have had that rule all along.

I'm not aware of any analysis of the impact on total SS payouts.

 

[Independent]

What is your logic to claim that "We all know the employee pays the tax"?

The general idea is that the legal incidence of a tax is not the same as the economic incidence.

For example, suppose we tax all oil refiners $1/gallon of gasoline that they ship out of the refinery, that doesn't mean the refiners' profits will go down by $1/gallon. It's more likely that pump prices will go up by (nearly) $1/gallon.

Economists think that the way to work this out is to look at the relative elasticities of the two parties to the taxed transaction. In the case above, it's easier (in the long run) for owners to take their capital out of money losing refineries than it is for auto owners to live without gasoline.

Regarding SS & Medicare taxes, employers can avoid the tax by outsourcing in the US, or outside the US, or automating. US workers don't have similar options.

(I used to work for a company that sold its product through "employees" and "brokers". The company looked at total costs of sales, and reduced employee cash commissions to offset the fact that the brokers paid their own "self-employment tax.)

The CBO's tax incidence studies make this assumption:

CBO also assumes, as do most economists, that the employers share of payroll taxes is passed on to employees in the form of lower wages than would otherwise be paid.

https://www.cbo.gov/publication/24725

 

[travelover]

The general idea is that the legal incidence of a tax is not the same as the economic incidence.
............https://www.cbo.gov/publication/24725

What? Then is it possible that free health insurance from employers isn't really free?

 

[Pilot2013]

I kind of like the "donut hole" approach....

 

[pb4uski]

CBO also assumes, as do most economists, that the employers share of payroll taxes is passed on to employees in the form of lower wages than would otherwise be paid.

While I see their point I don't necessarily agree because the converse would be that if the employer match was abolished that employee wages would go up.... and if one believes that is true then I have a bridge that I would like to sell them.

Or if payroll taxes increased that wages would go down... wages are a matter of demand and supply and the employer match does not affect demand or supply.

 

[samclem]

... wages are a matter of demand and supply and the employer match does not affect demand or supply.

?? that extra money removed from employers by the government doesn't impact the overall demand for labor or the compensation an employer can offer an employee while still making a profit?

 

[pb4uski]

?? that extra money removed from employers by the government doesn't impact the overall demand for labor or the compensation an employer can offer an employee while still making a profit?

So you really think that if the match were abolished that employers would increase employee compensation?

In high theory perhaps it affects demand, though a few posts ago Independent opined that it was just passed on to the consumer in product prices, which seems to me much more plausible than affecting demand, but in reality it is so trivial that it is probably close to last on the list of factors considered by a business in expanding or contracting their workforce.

In all my years of work I can never recall a meeting discussing staffing levels where anyone said... "But don't forget now, if we hire this person that we need we're going to have to pay payroll taxes on their pay so maybe we should hold off".

 

[Tadpole]

If the employer match to SS were really an absolute wash, no one would care one way or the other. It's becomes a mute point. I imagine the truth is that no one knows what wages would do if the employer tax were shifted to the employee. We each have our predictions on this but, if it is a wash, what does it matter if it remains as it is?

 

[Big_Hitter]

. It's becomes a mute point.

does that mean we can't talk about it?

 

[Big_Hitter]

In all my years of work I can never recall a meeting discussing staffing levels where anyone said... "But don't forget now, if we hire this person that we need we're going to have to pay payroll taxes on their pay so maybe we should hold off".

true, but fica/futa is certainly part of the benefits/tax load on comp

 

[Big_Hitter]

What? Then is it possible that free health insurance from employers isn't really free?

I think most employers that provide coverage pick up 80% of the cost

 

[Pilot2013]

In all my years of work I can never recall a meeting discussing staffing levels where anyone said... "But don't forget now, if we hire this person that we need we're going to have to pay payroll taxes on their pay so maybe we should hold off".

I don't know that pay would go up that much (I would hope, but not count on it), but I do know that decisions between FT and Contract employees are made every day based on fully loaded costs.

 

[samclem]

So you really think that if the match were abolished that employers would increase employee compensation?

Yep, on this I agree with "most economists" and the CBO. Supply and demand.

 

[Independent]

While I see their point I don't necessarily agree because the converse would be that if the employer match was abolished that employee wages would go up.... and if one believes that is true then I have a bridge that I would like to sell them.

Or if payroll taxes increased that wages would go down... wages are a matter of demand and supply and the employer match does not affect demand or supply.

The impact may not be immediate, but it would settle itself out in a few years.

The demand for employees is much less flexible than the supply. That's why the economic incidence falls on the employee.

As I pointed out, the business has multiple ways of getting the work done without being an employer -- just outsource to a self employed contractor, for example.

That's what my employer did. They made no bones about the fact that contractors got more cash than employees doing the same job, and the workers understood why that happened.

 

[Independent]

So you really think that if the match were abolished that employers would increase employee compensation?

In high theory perhaps it affects demand, though a few posts ago Independent opined that it was just passed on to the consumer in product prices, which seems to me much more plausible than affecting demand, but in reality it is so trivial that it is probably close to last on the list of factors considered by a business in expanding or contracting their workforce.

In all my years of work I can never recall a meeting discussing staffing levels where anyone said... "But don't forget now, if we hire this person that we need we're going to have to pay payroll taxes on their pay so maybe we should hold off".

I said that a gasoline tax would be passed on to the consumer, not a payroll tax. When the gov't taxes a transaction, the tax falls proportionately according to relative elasticity (opportunity to change behavior and not do this transaction at all). The gas tax taxes a transaction between businesses and consumers, the consumers pay because consumers have less flexibility. A payroll tax taxes a transaction between businesses and employees, the employees pay because they have less flexibility.

I've done multiple CBAs related to outsourcing or automating decisions. In every case, I've included the total cost of employees - wages, benefits, taxes, an any other variable cost (like equipment, supervision, office space). Corp finance would have laughed at me if I hadn't.

 

[Independent]

If the employer match to SS were really an absolute wash, no one would care one way or the other. It's becomes a mute point. I imagine the truth is that no one knows what wages would do if the employer tax were shifted to the employee. We each have our predictions on this but, if it is a wash, what does it matter if it remains as it is?

It matters if you're discussing certain changes to SS.

 

[athena53]

I don't know that pay would go up that much (I would hope, but not count on it), but I do know that decisions between FT and Contract employees are made every day based on fully loaded costs.

I agree- any decent HR department can tell you what % of wages to load on for benefits, and many actually communicate the costs of benefits to employees annually.

Some interesting thoughts here: first, if employers simply paid their share of the SS tax to employees it wouldn't be zero-sum: employees would now pay both halves of the tax out of taxable income. Round numbers: let's say the total SS contribution is 14% and you make $50K per year. Right now, you pay $3,500 to SS and your employer pays another $3,500. If your employer raises your pay to $53,500 and then takes the total $7,000 out of your gross pay, you just got stuck with another $3,500 in taxable income.

On spousal SS: we HAVE to have something. I have a wonderful DDIL who's a full-time Mom for my delightful granddaughter (and another on the way) and she has very little earnings record on her own. We can't have a system that leaves full-time parents and other caregivers with nothing as they age. I like the idea of splitting a married worker's SS contribution and putting half of it on a spouse's record with an accrual formula (possibly increasing their % contribution to do so).

There will still be losers, though. I've been married 26 out of the last 32 years so, in theory, have been paying for Spousal benefits all my life. So did my previous and current husband. I remarried at age 50 so had no claim on the Ex's SS. Neither did his first wife, who was able to collect on her own record (precious metals chemist with an armload of patents). DH is unlikely to live till I reach FRA at age 66 (just diagnosed with acute myelogenic leukemia and he's 78). I may get Widow's benefits for a few years but will collect my own SS at 70. And no one will collect Spousal SS on me. If I outlive DH I'm open to the possibility of the companionship of a good man but not marriage.

 

[Winemaker]

In all my years of work I can never recall a meeting discussing staffing levels where anyone said... "But don't forget now, if we hire this person that we need we're going to have to pay payroll taxes on their pay so maybe we should hold off".

Every staffing meeting I attended for the last 20 years included the 1) 8 hour cost of an employee and 2) cost for 2 hours overtime, 3) 8 hours of time and a half, and 4) plus 2 hours double time. We produced 6 days a week, 24 hours/day , maintenance on Sunday. Every employee had to be cost justified.

The last year I worked, when we had shift meetings, employees were told how much they added to production cost even when they took a sick day, or just simply missed. It cost $115.00 when someone missed, IIRC.

 

[samclem]

And, at some level, it hardly matters if the company consciously zeroes in on the labor costs. The market knows, and over time compensation (and staffing levels) adjust accordingly. To claim otherwise we'd need to also say people don't particularly care how much they earn and/or that companies are okay with paying people more than the need to.