Payroll Tax Cut Scam - taxes Forum

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Forums > All Posts > Payroll Tax Cut Scam

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2011-09-13 08:17 PM

flybum
Fresno, CA
Posts: 2

I have found that most people are not aware that the Payroll Tax Cut is actually a cut to the amount of Social Security being collected through Payroll deduction. This means that eventually 4% of payroll will not be collected shorting the Social Security System by an estimated $167 billion dollars per year. In other words, the politicians are giving you your retirement money now, and it will not be there at retirement which might cause the Social Security System to collapse or run out of money much earlier. The title of this tax cut is misleading. What is interesting that the media has said nothing about this. This is a bi-partisan scam since neither the Republicans nor the Democrats are making an issue out of plundering the fund once again.

2011-09-13 09:57 PM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

Look, there's no vault where they "save" Social Security dollars.

Excess funds go into the general fund. Treasury effectively borrows from the Social Security Administration, just like it issues securities to investors.

And why do they do this? B/c we're not about to tell the government to start making socialized investments in the private economy. Gov't stepped in during a liquidity crisis to save what remained of a national manufacturing base w/ the autobailouts and it was a shit storm, and this, after the right-wingers had completely misread (seriously) the president's home mortgage modifications plan and went completely ballistic starting the Tea Party Movement.

The only way to "save" for future retirement is to expand the economy....and you don't do this by withholding dollars from the private system.....and keeping them in a government vault.
..........
Secondly, did you not hear how Obama plans to PAY for the plan w/ tax code reform? Hello? Future benefit payments to retirees still won't "have" to be changed for 6 decades.

Look, benefits and payments both go into the general fund. The federal government does not have a capital account, because it's completely unnecessary, as Congress-Treasury-FED is the sovereign issuer of the currency. Spending appropriations, revenue collection, and bond issuance are separate articles of law.

Now you may need to talk to the D-Hub's resident Social Security expert, Schmidt, when it comes to facts, figures, and credited sources regarding the long-term solvency of Social Security, but I'm here to tell you it is still a political choice, whether we pay benefits, collect revenue, or neither. "Deficit" spending, in whatever respect, on Social Security retirees might seem crazy to some, but so long as our economy can produce the goods demanded with their Social Security "deficit" dollars....there is no risk of demand-pull inflation. National Debt=Net World Dollar Savings.
What matters in this respect is the ratio of retiree consumption to worker output. If there's not enough workers to meet the consumption needs of retirees, it does not matter how much or how little the government spends on Social Security, if there's not enough of the pie in goods and services to go around. So what does this mean? Well....you need education, infrastructure, and technological research & development...to fuel inventions and innovations that enable the adaptations in our economy that will be necessary to provide a meaningful purchasing power to future retirees in the outyears with their Social Security dollars.

2011-09-15 06:05 PM

flybum
Fresno, CA
Posts: 2

Thanks for your very informative response. It led me to doing more research and I found out more things that people probably don't want to know. Like.......the government is under no legal obligation to pay us our Social Security. The accounting for Social Security funds is even more complicated then you have portrayed but essentially, fund accounting doesn't necessarily keep the money separate, just the accounting for the money. Obama's cut draws on the General Fund account to make the SS Fund whole regarding this cut. http://en.wikipedia.org/wiki/Social_Security_(United_States) I think SS needs to me drastically changed to make it operate like an insurance company where they have a contractual obligation to pay what was agreed to. The SS Admin could make secure investments to earn the interest on the money. Not the stock market and not derivatives.

2011-09-16 08:06 AM

Schmidt
Colorado Springs, CO
Posts: 1058

Okay, we have discussed Social Security many times in this website, and rather than digging out those posts, I'll regurgitate many of my previous points and give it a new slant. I think that the Social Security Trust Fund has been the biggest scam ever perpetuated on the American poor and middle class workers. Why? Because since the era of surplus funds and the Trust Fund was created by Reagan/Greenspan in 1983, it has been nothing more than a scheme to redistribute wealth upwards under the guise of "saving social security." I'll explain.

First a few basics. There are main three taxation methods to tax the income of Americans: progressive taxes on income, flat taxes on income, and regressive taxes on income. I'll disregard special excise taxes on such things as booze and cigarettes for now.

The progressive tax is the one we think about most...the more income you have, the higher the tax rate you pay on that income. The top marginal rate is currently 35 percent of the taxable income over $379,150 for a couple filing a joint return. For comparison, before Reagan in 1981 it was 70 percent on taxable income over 215,400.

Flat taxes are just that. Taxes that are spread equally across all segments of society. An example of a flat tax is the payroll tax of 1.45 percent for Medicare. There is no cap on the salary for which the Medicare payroll tax is assessed. If you make $10,000 a year you are taxed at 1.45 percent of that income or $145. If you make $1,000,000 you are taxed at 1.45 percent or $14,500.

Regressive taxes are the opposite of progressive taxes. The more you make the less you pay as a percentage of income on those taxes. Social Security taxes (6.2 percent but temporarily reduced to 4.2 percent for 2011) act as a flat tax up to the cap on income (currently $106,800) and a regressive tax on the income above the cap. So a person making exactly the cap $106,800 a year in gross salary, would pay $6,621 in Social Security payroll taxes. But a person making $1,068,000 a year in payroll salary would also pay only $6,621 in Social Security taxes or 0.62 percent of income rather than 6.2 percent. It is a regressive tax because it affects the poor and middle class disproportunately.

So what Ronald Reagan and Alan Greenspan created was a scheme to raise the Social Security payroll taxes (a regressive tax) to create a surplus of those taxes. Those surpluses offset in part his reductions in top marginal income tax rates (the progressive taxes) for the wealthy from 70 percent in 1981 to 50 percent in 1982 and even lower to 28 percent in 1988. Notice I said "in part." Reagan also tripled the national debt with the deficit spending that these tax cuts created. However, without the increase in the regressive Social Security payroll taxes, he would have maybe quadrupled the debt (just a wild guess on my part if you extend the tax levels beyond his Presidency) or he would have been forced to rollback some of those reductions in the top marginal tax rates.

But wait, you might ask: Didn't all those surplus Social Security taxes go into the Social Security Trust Fund? Well yes and no. The Trust Fund does keep track of those surplus funds and they even give them a comforting name: special issue government bonds with interest. Now that might be comforting to some, but those bonds are nothing more than moral obligations for Congress to pay up in the future. George Bush called them IOUs. In fact there was no mechanism created to invest those surplus funds in precious metals or equities or anything else. Every single penny of the surplus went directly into the Treasury and was spent immediately. And special interest bonds (IOUs) were issued to show that the government had "borrowed" those funds from the workers of America.

Before 1983, Social Security operated as pay-as-you-go (PAYGO). It got along just fine like that since 1937...45 years before Reagan. However, it did require that Congress periodically adjust the payroll taxes in small increments, mostly upwards, to offset the additional demands placed on the Social Security system over those years. Republicans hated that. So they created the "surplus" with an increase in the Social Security payroll tax rate (it was 5.2 percent in 1983). That increase may seem somewhat modest, but it generated massive surpluses over the next 26 years that are now valued at $2.6 trillion with interest by the Social Security Trustees.

Ostensibly this $2.6 trillion fund was created to offset the demands on the younger generation as us baby boomer generation starts to retire in big numbers. However, because every penny of that Trust Fund has been spent, the demands on the younger generation to support the older genration are now exactly the same as if the Trust Fund never existed. Yes there is a moral obligation, but how far does that moral obligation extend when the younger generation sees so many retirees living off the backs of their labor? And the younger generation didn't spend that surplus...my generation did. And the rich of my generation benefited disproportunately because it allowed them to pay lower marginal tax rates.

In my view, we would have been better off continuing with PAYGO and not create the illusion of a Trust Fund for future retirees. And that is why I consider it a big scam. You might even want to consider it a $2.6 trillion transfer of wealth from the poor and middle class workers to the rich, because without it, the top marginal tax rates on income for the rich would have to have been kept higher. And the poor and middle class workers of America could have chosen how to spend their money instead of giving a tax break to the rich.

Lowering the Social Security tax rate to 4.2 percent does, in fact, mean that there is an extra burden on the general fund to make up that difference. Taxes from the general fund come from the progressive income taxes (which hit the rich) as well as the payroll taxes and excise taxes. So in effect it reverses the Reagan scheme to redistribute wealth upwards by putting a slightly higher tax burden on the progressive income tax payers (which include the rich). That's why I support it, and why many Republicans are trying to find ways to oppose it...using the argument of the deficits once again.

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