Donald Trump says he want to eliminate income taxes on Social Security benefits. These taxes are currently deposited in the Social Security and Medicare trust funds, a policy that was put in place under Ronald Reagan in order to help Medicare and Social Security finances.
So what happens to Social Security and Medicare if this tax goes away? Here's an estimate from the Committee for a Responsible Federal Budget:
Under Trump's proposal, the Social Security Trust Fund becomes insolvent a year earlier and the Medicare Trust Fund becomes insolvent six years earlier. Now you know.
Of all things in this world, my friends and co posters, the one thing I am sure of is no politician is going to allow Social Security to be cut by 24% in one year. I daresay they are not going to allow it to be cut by 1%.
These trust fund arguments are tiresome. It was cooked up by Reagan and Greenspan and now that both are dead so should this concept.
So you think all that extra money paid in by Boomers to finance their own retirements was . . . what? Thrown out the window? It was invested in Treasury securities to be redeemed later when the Boomers needed it, and yes, that counts as a trust fund.
Now all those obligations have to be redeemed to pay Boomer's Social Security, but Republicans have been using the surpluses all these years to paper over the impact of their tax cuts. That was the whole point of putting it "on budget." That means the obligations will have to be repaid from general revenue and that means higher taxes, which is why the party would really just rather default on the whole thing and call it a day.
It was not thrown out the "window" -- it was a scam by Reagan and Greenspan to raise payroll taxes to cut other taxes.
As it is integrated into the federal budget (the "trust fund" only gets to invest in US bonds), it is not a "fund" in the sense that it was separately invested.
Or, to put it another way, millions of not very well off Americans over-paid on payroll taxes from, whatever, 1985-2005 and "received" if you will, no additional SS benefits for that over payment, which allowed the wealthier cohort to benefit from lower income taxes during the same period.
We are so ridiculously capitalist. We can't even simply have SS and Medicare as part of the Federal budget. No one says "if we don't raise X amount in tax the military budget is cut by 24%" other first world countries address health care and retirement with the rest of the budget, as should we.
There are many, many things wrong with Social Security, which was designed in a different world 90 years ago and which has had only very marginal changes since then.
But any effort at significant changes to it is seen by the Trumpublicans as just an opportunity to destroy it, either directly or by building a self destruct mechanism into it, as with the "no tax on benefits" scheme.
This doesn't make any sense at all. Taxing benefits is the same as lowering benefits. I've never seen the point in giving people Social Security just to claw some of it back again. That's just lower benefits with extra steps.
In practice, the only way you pay income tax on SS benefits is if you have substantial additional income. The net effect is to lower benefits for people who don't need it as badly. I'm okay with that.
Same. I don't see the benefit in making our tax and transfer system significantly less progressive, which is what we'd be doing if we made all SS benefits tax free. I mean, is making affluent old people even more affluent an important national priority? Warren Buffett needs a tax break? (I'm pretty sure he agrees with me on this).
Plus, I'm a fan of simplicity (something the US undervalues in my opinion, especially when it comes to public policy): an income stream is an income stream, and there's no particular reason to privilege income streams that happen to be provided by the government.
Bing, Bing, Bing!
Donald Trump wants to give himself a tax break.
Every penny he can get.
There are many things I want to say, but I'll try not to use 10,000 words.
1. The redistribution of income from the bottom to the top was very bad for SS financing. The bottom 90% of households would have had about $33,000 more in income if their share hadn't gone from around 64% of national income to about 49% of national income. That's over $3T/yr and would have resulted in around $450 B/yr in additional SS and Medicare taxes. Since SS is somewhat progressive, the higher revenues would not have resulted in proportionately higher spending on benefits.
2. Given the above, the solution for SS and Medicare is to just tax the shit out of the rich. They've diverted over $50 T in income from working people into the pockets of the top 1% over the last 40 years and we want it back.
3. I'm in sympathy with the complaint of pjcamp1905 about the taxes on SS. The way it's done, the effective tax rate on a little extra income can be extreme. My mother-in-law's simple taxes were screwed up by her CPA back in 2002. The income that he left off was enough to make a real difference in the tax on her SS; the effective rate on the extra income was about 38%.
4. You can game the current system. Since only half of SS income goes into the calculation of how much SS is taxable, you want to delay starting SS until 70 if you can. Burn through taxable savings in 401ks and such and maximize the SS benefit you eventually get. That will let you minimize your taxes on SS.
For me, if after 70 SS is 2/3 of our family income and the rest is from taxable sources, then only a third of the SS will be taxable and the effective Federal tax rate on an actual income of over $90k is about 3%. It's insane that one should need to do such calculations, but such is the screwed up system we have.
5. Of course 4 does you no good if you die relatively young. Ideally you need to know exactly how long you will live. I don't know but decided to be optimistic.
The income that he left off was enough to make a real difference in the tax on her SS; the effective rate on the extra income was about 38%
It's unclear to me the exact situation you're describing, but a 38% marginal rate doesn't strike me as particularly "extreme." I personally would like to see marginal rates in the US top out at something like 85% for the highest incomes. Your M-I-L may not have been a wealthy woman, but if the issue is that income tax rates punish the non-affluent, the solution is lower the rates on such folks. No need to privilege government social insurance income streams over those that come from other sources like wages, or interest payments.
The redistribution of income from the bottom to the top was very bad for SS financing.
Agreed. For the life of me I don't know why Democrats don't propose a simple legislative fix to head off the trust fund exhaustion issue well before it arrives. Something like:
"The Treasury shall pay the full benefits accrued by Social Security recipients per the current schedule, without respect to assets held by the Trust Fund, or the debt ceiling."
True, no Congress can bind a future Congress, but if the GOP wants to mess with Roosevelt's Masterpiece at some point in the future, at least require them to pass legislation to do so! As it stands now, simple arithmetic is going to do their heavy lifting for them.
As someone who is receiving SS benefits, eliminating the tax on SS would be bad policy because it would disproportionally lower taxes on people who also have significant income outside of SS payments. Simply no reason why affluent retiree's should get a tax break.
Its also a stupid idea to eliminate taxes on tips, so that in a restaurant, only the waiters gets a benefit, but the rest of the staff that cooks and cleans are left out.
A simpler solution is to raise the standard deduction so that lower income people will pay less taxes, regardless of how the earn their livelihood. The wealthy and the corporations who have seen an enormous reduction in their share of the overall US tax burden, (provided by the Reagan, GW Bush, and Fuck Head's tax cuts) should pay for the change.
You're completely right about the taxation of tips. But the Harris campaign cannot afford to unilaterally disarm on economic populism, especially against an opponent as unprincipled and as reckless as Donald Trump. Hopefully if she wins the measure is either very narrowly tailored or (better yet) dies in Congress.
Harris doesn't have to "unilaterally disarm". Instead she should propose better solutions. Raising the standard deduction would be one. Let's be the party of real solutions to real problems. Eliminating taxes on tips or SS income is just throwing candy into the crowd.
You're vastly overestimating the policy chops of swing voters. Best to keep it simple, especially given that the proposal is designed to win votes in a single, very purple, very important state, Nevada. "No tax on tips" is much better politics because it's much more comprehensible.
At this point it's not just beginner's luck: the Harris campaign knows what they're doing, and they clearly have a first class polling operation.
I don't think I'm overestimating at all. "Keep it simple" is another way of saying "Aim for the lowest common denominator". Let's stop treating voters as if they're stupid. They're quite capable of understanding that raising the standard deduction helps them as well as others in similar situations. It's not advanced macroeconomics.
While I believe its bad policy and highly unlikely to be enacted without substantial modifications. I am 100% fine with Harris pandering to swing voters, keeping it real simple (15 second sound bites), and saying whatever she needs to say to win.
A nuanced approach to tax policy is fine during "peacetime", with a normal GOP opponent (if that still exists), but this if a fucking war with dire consequences if Orange Jesus wins.
Yep. Politics 101.