Good Article about ongoing Social Security Funding on Market Watch

[Flieger]

Honestly that is about the only reason theses days for tipping. Feel like my food is being held for ransom. I mean why does anyone deserve a tip for just doing their job?

To be clear, I agree about the "non-service activity" tipping phenomenon. But I hope you would be willing to pay 2-3X as much for your sit down restaurant food, to the provider (not voluntarily as with a tip) so that the people "just doing their job" are compensated accordingly. This is similar to the pay everyone $15 or $20, or why not $100/hr argument. The product will just cost more, negating the increase in wage.

If you hate tipping for a service, stay at home. I'm sure those servers would appreciate it.

Flieger

 

[Flieger]

The real reason for proposing no taxes on tips was to curry political favor in Nevada (and both candidates did so). But the whole notion of not taxing tips is intellectually corrupt.

If as a matter of public policy you want to help low earners then just change the lower tax brackets and rates. That would benefit a broader group of lower income taxpayers no matter how they earn their income. It doesn't seem fair to me that two Americans earning $30,000 a year will be taxed differently if one is a server that gets tips and the other is a factory or warehouse worker who has wages only.

This, just as all tax code, is to cater to constituents. Any tax "break" that is given and that we all use as part of ER activity or general tax reduction (I won't mention details so I don't get hand slapped) is just that, so this is no more intellectually corrupt than all of those. The only true way to stop that ever increasing process is a true flat tax, but IMO, that will never happen.

Flieger

 

[pb4uski]

This, just as all tax code, is to cater to constituents. Any tax "break" that is given and that we all use as part of ER activity or general tax reduction (I won't mention details so I don't get hand slapped) is just that, so this is no more intellectually corrupt than all of those. The only true way to stop that ever increasing process is a true flat tax, but IMO, that will never happen.

Flieger

No, a flat tax is also intellectually corrupt, at least if one believes that there should be some progressivity to income taxes based on ability to pay.

I realize and support the notion of the tax code being designed to achieve certain public policy objectives, like the child tax credit being used to help families because we need population growth, but the proposal to not tax tips is too blatantly political for my liking and doesn't have a legitimate public policy objective and is unfair.

 

[USGrant1962]

Eliminating taxes on tips will just change how tips are done. Everyone will start using the food delivery model where you add in the tip up front and drivers decide whether or not they want to do it. "Your roof replacement will be $10,000 plus tip. We suggest a $15,000 tip but you just write in what you feel is fair and we'll let you know if we can fit you into our schedule."

From the bill, roofing is not likely to go on the list of occupations traditionally receiving tips. From the proposed bill (underlines mine):

“SEC. 224. Qualified tips.
“(a) In general.—There shall be allowed as a deduction an amount equal to the qualified tips received during the taxable year that are included on statements furnished to the employer pursuant to section 6053(a).
“(b) Maximum deduction.—The deduction allowed by subsection (a) for any taxpayer for the taxable year shall not exceed $25,000.
“(c) Qualified tips.—For purposes of this section—
“(1) IN GENERAL.—The term ‘qualified tip’ means any cash tip received by an individual in the course of such individual's employment in an occupation which traditionally and customarily received tips on or before December 31, 2023, as provided by the Secretary.
“(2) EXCLUSION FOR CERTAIN EMPLOYEES.—Such term shall not include any amount received by an individual in the course of employment by an employer if such individual had, for the preceding taxable year, compensation (within the meaning of section 414(q))(4) from such employer in excess of the amount in effect under section 414(q)(1)(B)(i).”.
(2) PUBLISHED LIST OF OCCUPATIONS TRADITIONALLY RECEIVING TIPS.—Not later than 90 days after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary's delegate) shall publish a list of occupations which traditionally and customarily received tips on or before December 31, 2023, for purposes of section 224(c)(1) of the Internal Revenue Code of 1986 (as added by paragraph (1)).

 

[pb4uski]

But the whole thing is still conceptually flawed. Let's say that you have Jack and Jill. Jack works as a wage laborer or manufacturing plant worker or warehouse worker so does not receive tips and has earings of $45,000. Jill works as a waitress and also earned $45,000, but $25,000 was tips.

Under 2025 tax brackets and rates, Jack would pay $3,632 in federal income taxes, 7.47% of his $45,000 in wage earnings. Meanwhile, Jill would exclude her $25,000 of tips from income and on her $20,000 of wage income only pay federal income tax of $500 or 1.1% of her $45,000 of income.

Other than political pandering, I can't think of any good reason for the extreme difference in the taxes paid given the exact same income just because of the slight differences in the nature of their income.

 

[AudiDudi]

But the whole thing is still conceptually flawed. Let's say that you have Jack and Jill. Jack works as a wage laborer or manufacturing plant worker or warehouse worker so does not receive tips and has earings of $45,000. Jill works as a waitress and also earned $45,000, but $25,000 was tips.

Under 2025 tax brackets and rates, Jack would pay $3,632 in federal income taxes, 7.47% of his $45,000 in wage earnings. Meanwhile, Jill would exclude her $25,000 of tips from income and on her $20,000 of wage income only pay federal income tax of $500 or 1.1% of her $45,000 of income.

Other than political pandering, I can't think of any good reason for the extreme difference in the taxes paid given the exact same income just because of the slight differences in the nature of their income.

Now take two families with identical incomes. One is childless and the other has 4 kids. Why should they pay different taxes on the same income?

 

[Koolau]

This, just as all tax code, is to cater to constituents. Any tax "break" that is given and that we all use as part of ER activity or general tax reduction (I won't mention details so I don't get hand slapped) is just that, so this is no more intellectually corrupt than all of those. The only true way to stop that ever increasing process is a true flat tax, but IMO, that will never happen.

Flieger

My SWAG is that no-tax-on-tipping won't happen either, but who knows. If it does, it will likely be "complicated." YMMV

 

[Gumby]

Now take two families with identical incomes. One is childless and the other has 4 kids. Why should they pay different taxes on the same income?

Because the tax code is rigged to incentivize the production of future taxpayers.

 

[GenXguy]

Now take two families with identical incomes. One is childless and the other has 4 kids. Why should they pay different taxes on the same income?

Yeah, same thing when comparing two households with the same total income, but one household with one income earner, but one is married to non-working spouse. The married one pays half the taxes. And the single one has to help pay for the married guy's kids as well. To top it off, the non-working spouse will eventually be able to draw a nice SS benefit despite never paying a cent into it.

A flat tax across households would work better in those instances, but it's bad overall.

 

[2HOTinPHX]

If you hate tipping for a service, stay at home. I'm sure those servers would appreciate it.

Tip for you. Don't appreciate your snarky comment. Just because I am trying to make a point don't assume you know me. Thank you.

 

[youbet]

Yeah, same thing when comparing two households with one income earner, but one is married. The married one pays half the taxes. And the single one has to help pay for the married guy's kids as well.

I think you're wrong on the "half the taxes" comment. In some cases, that might be possible but generally it isn't true. Statements such as this are all part of the great "misinformation" controversy so prevalent on the Internet today.

 

[PIE314159]

Are you saying that the burden of keeping your SS whole should fall exclusively on the younger folks by asking them to contribute more and work longer? You're not willing to share the burden with them? Maybe you take a small cut and they pay a little more and work a little longer?

SS was set up without penalties for managing your own personal retirement portfolio. Musk & Bezo will fuel up their jets for one trip with their "annual SS payment", but the rest of us factored it in as part of the agreement. It might not break our retirement, but it will change how and where we spend remaining funds.

The "burden" of SS has always been laid on younger folks (a load we all carried at one time...), the issue is in how SS was not managed for the "longer term" and for successive generations. That lack of vision & oversight can be placed on the politicians of our Generation, the ones before us, and the ones who voted them into such a position.

In the end, our kids do NOT have to fund SS. They can change it just as easily as it was created.

 

[youbet]

In the end, our kids do NOT have to fund SS. They can change it just as easily as it was created.

I hope they do change SS. I have NO desire to ask today's youngsters to resolve our problem alone by paying extra / working longer to compensate for our generations paying in too little or the mismanagement that took place by politicians we elected. Today's young folks have their own challenges ahead of them just taking care of themselves. DW and I, conservative thinkers that we are, LBYM'd and invested so we're not cutting it too close in retirement. We like to think we can take care of ourselves at least to the extent of not having to beg for the younger folks to pick up our slack without some minor contribution on our part.

 

[GenXguy]

I think you're wrong on the "half the taxes" comment. In some cases, that might be possible but generally it isn't true. Statements such as this are all part of the great "misinformation" controversy so prevalent on the Internet today.

I left out something that might have caused your confusion. I edited my previous post. This is based on the household income being equal. The tax brackets and standard deduction are double for the married couple with the non-working spouse. Then the spousal SS benefit to come later will be extra gravy.

I'm paying off other people's kids' student loans and a lot of my tax dollars to their education, so they can step up and pay to fund SS like the rest of us. Raise the FRA for the younger ones.

 

[Fermion]

Higher inheritance tax would solve SS funding and other problems as well. Billionaires hold something like $7 trillion in wealth. A lot of these own hundreds of thousands of acres of land as well. The younger generation is already starting in the hole when massive inheritances are passed from generation to generation in a select few.

 

[Koolau]

I left out something that might have caused your confusion. I edited my previous post. This is based on the household income being equal. The tax brackets and standard deduction are double for the married couple with the non-working spouse. Then the spousal SS benefit to come later will be extra gravy.

I'm paying off other people's kids' student loans and a lot of my tax dollars to their education, so they can step up and pay to fund SS like the rest of us. Raise the FRA for the younger ones.

Turn that around for a moment and consider this: A w*rking spouse pays into SS for a subsequent benefit that s/he would have gotten without w*rking/contributing (spousal benefit). True a few spouses can collect on their own record. But even then, they could have gotten half their spouse's benefit without w*rking. Kotlkoff and Burns ("The Coming Generational Storm") go into this in detail with examples (suggesting over 100% taxation for some portion of wages earned by a 2nd family member IIRC). When it comes to taxes, we all get screwed - some more than others depending on marital status but a bunch of other things as well. It's complicated so that no one can really figure out how they're being screwed by the convoluted tax system. YMMV

 

[pb4uski]

Now take two families with identical incomes. One is childless and the other has 4 kids. Why should they pay different taxes on the same income?

That one is easy. Congress has made a public policy decision that we need population growth and has provided tax incentives to families and that is why we gave the child tax credit and why prior to that we have additional deductions for dependent children.

I suppose that if Congress made a public policy decision that they wanted to grow jobs and professions that earn tips then you might have somewhat of a point but I don't think that is the motivation in this case. It was just a flagrant attempt to curry favor with a subset of voters ( and both candidates did it). Now, they are stuck with it,but it is still corrupt from a public policy perspective.

 

[pb4uski]

Yeah, same thing when comparing two households with the same total income, but one household with one income earner, but one is married to non-working spouse. The married one pays half the taxes. And the single one has to help pay for the married guy's kids as well. To top it off, the non-working spouse will eventually be able to draw a nice SS benefit despite never paying a cent into it.

A flat tax across households would work better in those instances, but it's bad overall.

Man, you're a one-trick pony.

 

[Koolau]

That one is easy. Congress has made a public policy decision that we need population growth and has provided tax incentives to families and that is why we gave the child tax credit and why prior to that we have additional deductions for dependent children.

I suppose that if Congress made a public policy decision that they wanted to grow jobs and professions that earn tips then you might have somewhat of a point but I don't think that is the motivation in this case. It was just a flagrant attempt to curry favor with a subset of voters ( and both candidates did it). Now, they are stuck with it,but it is still corrupt from a public policy perspective.

There's an old saying, something about oxen being gored or some such.

 

[Gumby]

There's an old saying, something about oxen being gored or some such.

"Where you stand depends on where you sit." Rufus Edward Miles (1948)

An aphorism sometimes known as Miles' Law.

 

[youbet]

I left out something that might have caused your confusion. I edited my previous post. This is based on the household income being equal. The tax brackets and standard deduction are double for the married couple with the non-working spouse. Then the spousal SS benefit to come later will be extra gravy.

I'm paying off other people's kids' student loans and a lot of my tax dollars to their education, so they can step up and pay to fund SS like the rest of us. Raise the FRA for the younger ones.

No confusion on my part, just misinformation on your part.

I have no problem with raising the FRA for younger folks or asking them to pay higher levels of FICA. I'm just against asking them to shoulder all the burden without current or soon-to-be recipients also taking a stake in the fix.

 

[pb4uski]

Higher inheritance tax would solve SS funding and other problems as well. Billionaires hold something like $7 trillion in wealth. A lot of these own hundreds of thousands of acres of land as well. The younger generation is already starting in the hole when massive inheritances are passed from generation to generation in a select few.

And while you're at it, eliminate stepped up basis. There is no justifiable reason for erasing taxes deferred on unrealized appreciation upon death. If you want to, allow taxes on unrealized appreciation on inherited assets to be spread out over 5 or 10 years, but no way should they be forgiven entirely.

 

[pb4uski]

No confusion on my part, just misinformation on your part.

I have no problem with raising the FRA for younger folks or asking them to pay higher levels of FICA. I'm just against asking them to shoulder all the burden without current or soon-to-be recipients also taking a stake in the fix.

Sounds reasonable depending on what thr "stake in the fix" for current or soon-to-be recipients is. Care to enlighten us?

 

[2HOTinPHX]

No confusion on my part, just misinformation on your part.

I have no problem with raising the FRA for younger folks or asking them to pay higher levels of FICA. I'm just against asking them to shoulder all the burden without current or soon-to-be recipients also taking a stake in the fix.

I agree we should all share some of the burden for the failure to vote in people who would have addressed this ticking time bomb. I think we all share some of the blame for the can getting kicked down the road. It was described as the third rail that nobody wanted to touch. Lose lose situation for politicians. Well the time in the clock has almost run out. Keep in mind those born in 1960 or later were subject to an age increase lol from 65 to 67. So that's like a cut because we have two years less of SS funding in our retirement years. I think the wage cap should have been adjusted gradually over the years so it wouldn't seem so painful now probably would have helped a lot.

 

[pb4uski]

One thing to keep in mind is that on average those born later have higher life expectancies and will be collecting more years of benefits than those born earlier. In other words, part of the reasoning for extending the FRA was to adjust the number of years that recipients would receive benefits due improved longevity.