Billionaires and Roth IRAs: the case for tax reform

[walkenvol]

I'm not missing the point; I just emphatically disagree with it. If the spousal benefit were so advantageous, more couples would choose to avail themselves of it. I see no evidence, however, that it's been an inducement for anyone at all to leave the labor market.

As for the idea that homemakers are free riders in the Social Security system, I submit that the opposite is in fact true. Social Security was designed to be a "pay as you go" system -- there is no "lock box." Benefits for current workers will ultimately be paid by the two generations that follow them. On balance, families with a stay-at-home parent contribute disproportionately to the cost of keeping the system afloat.

I honestly don’t understand your perspective on any of those points. How many 30 year old women are making employment decisions on their potential SS benefits 30+ years down the road?

Also, anyone drawing benefits without paying into the system is the definition of a free loader. Pleas help explain why one guy should draw 1.5 times the amount as a peer who’s make equal contributions to the system based on his roommate’s employment choices? My spouse stayed at home until our children were in school and it was the right decision for us. She chose to return to the workforce when she wasn’t providing full time child care. Was the right decision for us but everyone needs to decide what’s right for them. I just don’t understand the logic of why the government should provide your family extra retirement benefits if your partner wants to avoid being in the workplace for 40+ years. Children has nothing to do with that choice

 

[walkenvol]

It may be, but it is the only thing keeping a lot of people out of poverty or in less poverty than they would have been. You would think if it was so easy to just save 12% of your income everyone would do it. Sadly, most people refuse to think that far ahead and invest nothing, don't earn enough for 12% to be available or enough, or just save less than 12% (I saw between 5-8% contribution rates for people in their 20s which is the most critical time to start saving).

Want to lose weight. - simple for most folks eat less and move more.

Want to save money - simple, put your chosen amount of savings back then spend what’s left. Almost everyone can find someone else who’s getting by on less. If you don’t like that lifestyle, then get a side hustle or better job.

Both concepts are easily doable by the overwhelmingly large percentage of the population, but both are hard and take discipline. You have to not do something you desire today to create an outcome you desire some time later.

These facts are pretty difficult to refute. But it’s fighting against your nature to want things right now

 

[utvolpj]

I admit I am not an expert on SSA yet. Let me do a few googles to get caught up. just messing. Not an expert, no interested in becoming one.

I would assume there was a reason the safety net was created in the 1930s and poverty/poor living conditions of the elder at that point would have probably been the driving factor. There are plenty of examples of social laws that came into effect due to need in the early 1900's (Child labor, food safety, general labor/OSHA) so I will assume this one was partially needed as well. Judging by the number of friend/relatives that are mostly supporting themselves on social security, there is still a need for it for one reason or another.

I think the assumption that a govt program was created with the best of intentions to be very suspect. They were more than likely created with the thought that govt knows better. Many programs created during the time you mentioned actually exacerbated the poverty it targeted rather than relieve it.

 

[McDad]

I think the assumption that a govt program was created with the best of intentions to be very suspect. They were more than likely created with the thought that govt knows better. Many programs created during the time you mentioned actually exacerbated the poverty it targeted rather than relieve it.

And/or the thought of creating voting blocs for parties in perpetuity.

 

[DancingOutlaw]

I think the assumption that a govt program was created with the best of intentions to be very suspect. They were more than likely created with the thought that govt knows better. Many programs created during the time you mentioned actually exacerbated the poverty it targeted rather than relieve it.

SS was set up as an end of life deal or to help orphans and widows, not something you live off of for the next 20 years. You also had something like 12:1 workers paying in to recipients. Now it's 2:1 and the life expectancy is up 30% since the 30's. And we've drastically curbed the number of families left without a breadwinner due to an accident at the mill or the mine.

 

[utvolpj]

And/or the thought of creating voting blocs for parties in perpetuity.

Voting block that will favor increased govt. I don't personally see that as a party issue since staying in power is the goal of every politician

 

[McDad]

Voting block that will favor increased govt. I don't personally see that as a party issue since staying in power is the goal of every politician

agreed. that's why i used the plural.

 

[lawgator1]

Why not? isn't that income?

No.

 

[Thunder Good-Oil]

If a wealth tax is created, how are all of the non-public investments going to be assessed or appraised or valued? About the best way to determine those values would be formulas based on income or revenue. So it would just be going full circle… instead of taxing the net income the government will determine a value of the wealth to get taxed… based on the income.

Another scheme by the government could be to tax retained earnings, which there already is record keeping in place for corporations. This would incentivize corporations to pay dividends which would then also be taxed.

No matter how they go about it, the government just has an insatiable need for revenue. Instead of wrecking the economy by raising rates on corporations (and making them less able to compete with the rest of the free world), take it directly from EVERYBODY… educate the public that nothing is free. Make EVERYBODY feel the pain when the government is unable to operate efficiently.

 

[hog88]

No.

What is it then?

 

[volkyries]

Want to lose weight. - simple for most folks eat less and move more.

Want to save money - simple, put your chosen amount of savings back then spend what’s left. Almost everyone can find someone else who’s getting by on less. If you don’t like that lifestyle, then get a side hustle or better job.

Both concepts are easily doable by the overwhelmingly large percentage of the population, but both are hard and take discipline. You have to not do something you desire today to create an outcome you desire some time later.

These facts are pretty difficult to refute. But it’s fighting against your nature to want things right now

I fully agree with these facts. I had a follow-up post which is really my point in that you are free to exercise or save for retirement, but if you don't are you really penalized that much? Fat people are a drain on healthcare with surgeries that would be unnessary if they were healthier and poor savers are a drain on SSA.

Do you make people make better choices (govt interference on the front-end), save them from their bad choices (govt interference on the back-end), or the third, and I argue non-existent choice, let people make bad decisions and then pay for them (no govt interference)? Everyone claims they want 3, but I just see too many people saying they want their freedom until it bites them in the butt then they look for a bailout of some sort or people want them to have one.

 

[lawgator1]

What is it then?

A government benefit. I just think it is in a different class and makes no sense to tax a government benefit. If you want to reduce the benefit that is another debate.

 

[hog88]

A government benefit. I just think it is in a different class and makes no sense to tax a government benefit. If you want to reduce the benefit that is another debate.

It's not a "government" benefit it's a payment from us taxpayers and is income. If you want to treat all income the same then entitlements should be treated the same as all income.

 

[walkenvol]

I fully agree with these facts. I had a follow-up post which is really my point in that you are free to exercise or save for retirement, but if you don't are you really penalized that much? Fat people are a drain on healthcare with surgeries that would be unnessary if they were healthier and poor savers are a drain on SSA.

Do you make people make better choices (govt interference on the front-end), save them from their bad choices (govt interference on the back-end), or the third, and I argue non-existent choice, let people make bad decisions and then pay for them (no govt interference)? Everyone claims they want 3, but I just see too many people saying they want their freedom until it bites them in the butt then they look for a bailout of some sort or people want them to have one.

How are poor savers a drain on SSA?

 

[volkyries]

How are poor savers a drain on SSA?

You are correct. Poor savers are not really a drain on the system. Point was that they need SS because it is their only option or at least a majority of their retirement planning. Can people save on their own, yes. Would people save on their own, some would and some wouldn't.

 

[DuckInAPen]

I honestly don’t understand your perspective on any of those points. How many 30 year old women are making employment decisions on their potential SS benefits 30+ years down the road?

Also, anyone drawing benefits without paying into the system is the definition of a free loader. Pleas help explain why one guy should draw 1.5 times the amount as a peer who’s make equal contributions to the system based on his roommate’s employment choices? My spouse stayed at home until our children were in school and it was the right decision for us. She chose to return to the workforce when she wasn’t providing full time child care. Was the right decision for us but everyone needs to decide what’s right for them. I just don’t understand the logic of why the government should provide your family extra retirement benefits if your partner wants to avoid being in the workplace for 40+ years. Children has nothing to do with that choice

Some thoughts:

1) The spouse who works for pay (traditionally the husband) does not receive a 50% bonus. The 50% spousal benefit belongs to the spouse (traditionally the wife) who did not earn enough income to qualify for a Social Security benefit greater than 50% of that of the spouse who worked for pay. If there is a divorce (after at least ten years of marriage), the (usually) ex-wife will receive the spousal benefit, which the (usually) ex-husband will never be able to touch. Two breadwinners earning the same amount of income subject to FICA during their ten highest-earning years will receive the same Social Security benefit, regardless of how much or how little their spouses contributed via FICA taxes.

2) You are thinking of contribution to the system only in terms of individual taxation. The reality is that the succeeding generation pays the benefits of the preceding generation. Those homemakers who receive benefits on their spouse's record will generally have borne the costs of raising in disproportionate numbers the future taxpayers who will keep the system going. In many cases they will also care for elderly relatives at home, keeping them out of the nursing home and keeping them from becoming a public expense.

3) The period during which a homemaker takes care of her minor children can easily exceed three decades. Her attentive care will, in aggregate, prevent her children from contributing to the costly social ills that plague our society and will make them better, more productive citizens. During this time, she will not enjoy the tax deduction for daycare expenses that others receive, despite the imputed cost of her work.

4) Social Security is one of the last vestiges in our system supporting the ideal of a family -- as opposed to an individual -- wage. The family is one of the "little platoons" that stand between the naked individual and the unchecked power of the state. It is no coincidence that communist regimes have endeavored by intentional policy to undermine the traditional family (and that those who would reduce our liberty here pursue the same end).

 

[walkenvol]

Respectfully, you appear to want SS to be given our like a welfare system. I’ve always understood it was started as a government mandated “pension type” plan designed to draw out based on the amount of your contributions. The spousal benefit is a clear contradiction of the benefits being determined by the contributions - pay to play if you will. Supposedly, that’s why the contributions were originally kept separate from the general budget.

I’m sure everyone who’s spouse didn’t contribute to SS like her/him getting paid and will argue it’s a good policy. Fiscally, for a system that we are continually told is in trouble I’d argue its a costly handout to folks who didn’t pay into the system. Times have changed in the last 90 years and couples should make their retirement plans without counting on a freebie SS benefit.

 

[DuckInAPen]

Respectfully, you appear to want SS to be given our like a welfare system. I’ve always understood it was started as a government mandated “pension type” plan designed to draw out based on the amount of your contributions. The spousal benefit is a clear contradiction of the benefits being determined by the contributions - pay to play if you will. Supposedly, that’s why the contributions were originally kept separate from the general budget.

I’m sure everyone who’s spouse didn’t contribute to SS like her/him getting paid and will argue it’s a good policy. Fiscally, for a system that we are continually told is in trouble I’d argue its a costly handout to folks who didn’t pay into the system. Times have changed in the last 90 years and couples should make their retirement plans without counting on a freebie SS benefit.

1) Social Security is of course a New Deal social welfare program, but one-income families do not benefit from this program disproportionately and are not its free riders.

2) You can't reasonably appeal to the original intent of the program to argue for eliminating one of its original and integral provisions.

3) The solvency of the Social Security system is threatened not by an excessive number of homemakers failing to pay into the system (indeed, there are proportionately fewer one-income families now than in any other period since the inception of Social Security); it is threatened, rather, by demographic decline caused by the average American producing too few children.

Here's a concise statement of the problem by Robert Stein, who served in the Treasury Department under George W. Bush:

"The biggest bias in fiscal policy isn’t against capital formation; it’s the perverse anti-natal incentive built into Social Security and Medicare. Those programs require every generation of adults to perform two tasks: (1) work and pay taxes so the previous generation gets to retire and (2) raise children so there are future taxpayers to pay for benefits. But your retirement benefits have almost everything to do with your work career and almost nothing to do with how many children you raise.

Don’t think this matters? Imagine living before these government programs existed, when your ability to retire at all depended on raising children, amassing sufficient personal savings, or relying on charity. Or imagine a Social Security program with benefits determined by your own kids’ earnings. No kids, no Social Security: If you want to retire, you’d better have raised an investment account. In either scenario, many adults would decide to raise more children and invest more in their future productivity."

Republican Economic Policy: A New Agenda | National Review

You might also read the Ramesh Ponnuru essay I posted above:

The Empty Playground and the Welfare State | National Review

 

[walkenvol]

I’ll just have to agree to disagree on this topic. SS benefits by design are determined by your contributions. Pay more in - get more out. By law the SS payments had to be invested within the SS Trust Fund with the idea that your lifetime contributions would grow such that “your contributions” would fund “your future benefits” which is exactly what is required of corporate pension plans by law. If it was designed as you claim for later generations to fund prior generations retirements, then why is the SS Trust Fund balance always discussed in reference to the sustainability of the SS system? Our inept government has tried their best to mess it up by making rules to allocate funds to non-contributors and not maintain a proper Trust Fund balance especially in light of historically low interest rates stunting the fund’s growth.

Steps need to be taken to shore up the program before it becomes just another welfare program. Dropping those receiving benefits is a great way to start. Eventually, they will have to remove the cap on yearly contributions, raise the percentage of contributions, and raise the age one can begin drawing benefits to reflect longer life spans.

 

[hog88]

I’ll just have to agree to disagree on this topic. SS benefits by design are determined by your contributions. Pay more in - get more out. By law the SS payments had to be invested within the SS Trust Fund with the idea that your lifetime contributions would grow such that “your contributions” would fund “your future benefits” which is exactly what is required of corporate pension plans by law. If it was designed as you claim for later generations to fund prior generations retirements, then why is the SS Trust Fund balance always discussed in reference to the sustainability of the SS system? Our inept government has tried their best to mess it up by making rules to allocate funds to non-contributors and not maintain a proper Trust Fund balance especially in light of historically low interest rates stunting the fund’s growth.

Steps need to be taken to shore up the program before it becomes just another welfare program. Dropping those receiving benefits is a great way to start. Eventually, they will have to remove the cap on yearly contributions, raise the percentage of contributions, and raise the age one can begin drawing benefits to reflect longer life spans.

It’s been just another welfare program for decades.

 

[walkenvol]

It’s been just another welfare program for decades.

Then why aren’t the benefits determined by a “need based” process instead of the “contribution based” process as has always been it’s design?

 

[hog88]

Then why aren’t the benefits determined by a “need based” process instead of the “contribution based” process as has always been it’s design?

Because politicians like to get reelected.

 

[NorthDallas40]

Then why aren’t the benefits determined by a “need based” process instead of the “contribution based” process as has always been it’s design?

There is a need based provision. Disability. If you meet the disability criteria you get accelerated to full benefits immediately. That is admittedly weighted by pay in. It checks both boxes and FDR always intended for it too. In fact there’s a famous quote from him on how it will never get cut because no politician would ever have the balls to cut off the cheese to the rodents er… tax payers.

 

[McDad]

There is a need based provision. Disability. If you meet the disability criteria you get accelerated to full benefits immediately. That is admittedly weighted by pay in. It checks both boxes and FDR always intended for it too. In fact there’s a famous quote from him on how it will never get cut because no politician would ever have the balls to cut off the cheese to the rodents er… tax payers.

Bush 2 proposed a modest revision to SS which would have allowed people to self direct their funds. You would have thought Armageddon was upon us the way politicians and media wailed about it.

 

[DuckInAPen]

I’ll just have to agree to disagree on this topic. SS benefits by design are determined by your contributions. Pay more in - get more out. By law the SS payments had to be invested within the SS Trust Fund with the idea that your lifetime contributions would grow such that “your contributions” would fund “your future benefits” which is exactly what is required of corporate pension plans by law. If it was designed as you claim for later generations to fund prior generations retirements, then why is the SS Trust Fund balance always discussed in reference to the sustainability of the SS system? Our inept government has tried their best to mess it up by making rules to allocate funds to non-contributors and not maintain a proper Trust Fund balance especially in light of historically low interest rates stunting the fund’s growth.

Steps need to be taken to shore up the program before it becomes just another welfare program. Dropping those receiving benefits is a great way to start. Eventually, they will have to remove the cap on yearly contributions, raise the percentage of contributions, and raise the age one can begin drawing benefits to reflect longer life spans.

You fundamentally misunderstand how Social Security works (and has always worked). I quote directly from the Social Security Administration:

"When you work, you pay taxes into Social Security. We use the tax money to pay benefits to:

• People who have already retired.
• People who are disabled.
• Survivors of workers who have died.
• Dependents of beneficiaries.

The money you pay in taxes isn’t held in a personal account for you to use when you get benefits. We use your taxes to pay people who are getting benefits right now. Any unused money goes to the Social Security trust fund that pays monthly benefits to you and your family when you start receiving retirement benefits."

Learn About Retirement Benefits | SSA

Given your misunderstanding, I understand why you feel the way you do. I would object, for instance, were the government taking from the 401k balances of some to provide a spousal benefit to others.

Given how Social Security actually works, however, your proposal would unjustly deprive of their rightful portion those who have already paid (often more than) their fair share and who are already disadvantaged by a tax structure that has long put its thumb heavily on the scales in favor of the interests of dual-income families.

Good day to you and yours.