Obama's economic plan - Soak The Rich

[mr rosewater]

How can you fix social security without decreasing inequality? Genuine question

What inequality? Genuine question!

 

[Fiona]

http://en.wikipedia.org/wiki/Gini_coefficient

While most developed European nations tend to have Gini indices between 24 and 36, the United States' and Mexico's Gini indices are both above 40, indicating that the United States and Mexico have greater inequality. Using the Gini can help quantify differences in welfare and compensation policies and philosophies. However it should be borne in mind that the Gini coefficient can be misleading when used to make political comparisons between large and small countries (see criticisms section).

 

[boooeee]

I'm not sure what I think about Obama's plan, but it does represent a pretty significant philosophical change in what Social Security is supposed to be.

As I understand it, it is supposed to be a program where the government sets aside some of your money so that you'll have it when you retire and are no longer able or willing to work. Now, I know that SS is actually a "pay as you go" system where the money taken out of my paycheck goes to people on Social Security now. The money I get when I retire will come from those still working.

Social Security is supposed to be about income deferral, not income transfers.

Also, it seems pretty obvious that the rationale behind the "donut hole" is political. I would expect a significant chunk of the voting block is in that $100k to $250k range. The number of people in the $250k+ range is probably much smaller.

 

[corplinx]

The number of people in the $250k+ range is probably much smaller.

People in the 250k range are like atheists. A safe target for a politician to demonize or fleece at will. That's change you can believe in.

 

[gdnp]

I'm not sure what I think about Obama's plan, but it does represent a pretty significant philosophical change in what Social Security is supposed to be.

As I understand it, it is supposed to be a program where the government sets aside some of your money so that you'll have it when you retire and are no longer able or willing to work. Now, I know that SS is actually a "pay as you go" system where the money taken out of my paycheck goes to people on Social Security now. The money I get when I retire will come from those still working.

Social Security is supposed to be about income deferral, not income transfers.

The logic behind the cap on wages subject to social security taxes (currently at 102K per person) is that there is also a cap on benefits. Your benefits are supposed to be based on what you pay in. The person who earns $105 K per year gets the same benefit when they retire as someone who earns $105 million, so they pay the same tax. The system was not designed to make the rich pay for the retirement of the poor and middle class.

The reason the system is broke is that most people collect more than they pay in. People's retirements are lasting too long. The simplest fix would be to raise the retirement age. People would pay in longer and collect for fewer years.

Also, it seems pretty obvious that the rationale behind the "donut hole" is political. I would expect a significant chunk of the voting block is in that $100k to $250k range. The number of people in the $250k+ range is probably much smaller.

The more I think about it, the less I like Obama's proposal. I see no good reason for the "donut hole," except people in that income range tend to support him while richer people tend to vote Republican. It adds another level of complexity to a tax system that is already too complex. And it funds the government through the labor of those who earn their money, exempting those with similar incomes based on capital gains, dividends, and interest.

Before the flames start, let me state once again that I believe in a progressive tax system. I also believe the tax system should be more progressive (meaning that I should pay a higher share than I do now.) I just think those with passive income should pay as much or more than those that work for it.

 

[Meadmaker]

The more I think about it, the less I like Obama's proposal. I see no good reason for the "donut hole," except people in that income range tend to support him while richer people tend to vote Republican. It adds another level of complexity to a tax system that is already too complex. And it funds the government through the labor of those who earn their money, exempting those with similar incomes based on capital gains, dividends, and interest.

I thought about it, and I, too, like it less and less, even to the point of thinking it might be worse than the current system.

The problem is that very, very, few people would actually pay this new tax. Very few people have the level of income he is proposing to tax. Of those who do, very few of them make their money via things that are subject to payroll tax.

As a consequence, it will raise very little revenue. If that's the case, what's the point of the change? The only thing I can see is to arouse some class envy, and I think that's an unworthy goal. I'll vote for a politician who says we are going to have to pay higher taxes in order to fund programs, but Obama is proposing higher taxes on a small group of people, which won't fund the programs. What's the point, unless it's a nifty sound bite about "making rich people pay their fair share?"


P.S. Are book royalties subject to the self employment tax?

 

[drkitten]

Never mind.

 

[gdnp]

P.S. Are book royalties subject to the self employment tax?

I would think that this would count as earned income, since the author wrote the book, and since I doubt that the publisher is paying any into the system it would probably count as self-employment income and be subject to self-employment tax.

Then again, I don't know. Just another example of our overly complex tax code.

 

[SezMe]

P.S. Are book royalties subject to the self employment tax?

My self-employed, published author wife who gets royalties says, "Yes"

 

[Texas]

So what percentage of USians meet your definition of "rich"?

If your definition of rich only refers to the top 1% of society or less, then it's not a very useful definition, especially if you're going to try to run the line that everyone who isn't "rich" is at best living a "nominal middle class life".

Simple. If you have a salary of 250K it can be taken from you on a whim by your employer plus the fact that to earn that level of salary you more than likely live in an area with a very high cost of living. On the other hand, if you have 3 million in investments earning 8% you have an income of 250k and can live where you please. Ask the thousands of Wall Streeters that were just laid off if they now are rich? You answered your own question. The only people with real "go to hell" money comprise at best 2% of the population. The rest are just high salaried wage slaves that can lose their incomes as easily as any of us.

 

[JEROME DA GNOME]

The logic behind the cap on wages subject to social security taxes (currently at 102K per person) is that there is also a cap on benefits. Your benefits are supposed to be based on what you pay in. The person who earns $105 K per year gets the same benefit when they retire as someone who earns $105 million, so they pay the same tax. The system was not designed to make the rich pay for the retirement of the poor and middle class.

An interesting note. When Bush took office the cap was $80,500.

Tax cuts for the rich my big toe.

 

[Tricky]

Do you itemize deductions or do you just pay the tax on your gross income? If the latter then you are walking the walk, if the former you are just patting yourself on the back.

The latter.

 

[JEROME DA GNOME]

Global Rich List

 

[Texas]

The latter.

LOL. This is the second time I have tried a "gotcha" on you and you counter with honesty. Kudos I concede the match.

 

[Neally]

I also believe the tax system should be more progressive (meaning that I should pay a higher share than I do now.)

Then why don't you simply donate to the treasury? They would happily take your contributions.

 

[Kestrel]

The reason the system is broke is that most people collect more than they pay in. People's retirements are lasting too long. The simplest fix would be to raise the retirement age. People would pay in longer and collect for fewer years.

Actually the Social Security system is not broke. It will run out of surplus in 20 some years if our nations economy doesn't grow much during that time. Tax and benefit levels will have to be adjusted to keep the system solvent.

If our economy grows more than the conservative assumptions in the model used for the SS trust fund, the surplus lasts a lot longer. If you assume the same kind of economic growth we have had over the past several decades, the Social Security trust fund never dries up.

If you plug the conservative economic growth assumptions used for the SS trust fund into a stock market model, it will predict a stagnant stock market. The return on your 401k investments would be rather slim.

Get the economy running properly and the Social Security problem solves itself.

 

[Texas]

Global Rich List

That site is ridiculous but it just shows the futility and danger in trying to define who is "rich" if used by politicians with an agenda.

 

[gdnp]

An interesting note. When Bush took office the cap was $80,500.

Tax cuts for the rich my big toe.

Yep, tax cuts for the rich, and further squeezing of the middle class. Or do you consider all families earning between $80,500 and $102,000 rich?

 

[Tricky]

[ranting] Congratulations. You have successfully demonstrated that I am in the top 2% of income in the US. By your definition, that makes me rich.

However, if you read the above post, I think you will see why I don't feel rich. Top 2% income does not imply top 2% wealth.

Congratulations. You have sucessfully demonstrated what I said earlier that rich people don't feel rich because they know somebody richer. This is not to demonize you. You have a right to be rich. That right comes with responsibilities, which include paying a larger percentage in taxes. Since you are more a beneficiary of our economic system, you have an obligation to give more of it back.

As for wealth as opposed to income, I agree that wealth should be taxed too.

The world I am living in is called the New York Metropolitan area.

It is a place where a 3 1/2 bedroom house in a town with an excellent public school system costs $800,000. Yeah, that's right. Us rich guys send our kids to public schools. Of course, if you want a commute of less than 45 minutes each way, then you're looking at over a million.

Property taxes on said house are $15,000/ yr. Sorry, that was last year. This year will be closer to 16K.

Yes, you have extraordinarily high expenses. Let me know when you are willing to trade your position with a person making $40,000 a year. For some people this would mean that they think that even though they are rich, they don't feel that they are rich enough. I cannot find myself to be moved by their economic trauma. From your later comments, I see that you are not one of these people. I am quite impressed with that and with your social responsibility.

But you are still rich. It's a numbers thing.

That being said, I am not complaining about having to pay too much in taxes. I believe that the Bush tax cuts should be allowed to expire. I only have 2 beefs with the tax system: one, that the income I earn is taxed at a higher rate than the income that people make on inherited wealth, and two, that I have to hire an accountant and pay him $1000 a year to file my taxes because the $%^$@# system is so complex that I can't do it myself.

Good. I think you are a responsible rich person. There are many many of them.

As for the inheritance tax that Bush successfully labeled the "death tax", giving the advantage to historically wealthy people, well, I think he did the country a great disservace in order to benefit wealthy families like his own and his supporters'. It is amazing what a little PR and re-labeling will do. Even poor people were convinced that this tax which was greatly to their benefit, was unfair.

As far as I am concerned the cap on the payroll tax should be lifted altogether. It is a regressive tax. I would be even more thrilled it were extended to all income, including capital gains, interest, and dividends.

Good lad. I'm proud of you. You see folks, being rich need not mean that you are greedy.

 

[gdnp]

Then why don't you simply donate to the treasury? They would happily take your contributions.

Because my donation would be like spitting in the ocean given the trillions of debt. Bill Gates couldn't make a dent.

I'm willing to pay my share as long as others do. Otherwise, I'd rather send it where it might really do some good. Like the Sierra club, Habitat for Humanity, or the local food bank.