• Facebook
  • Twitter
  • Subscribe
  • RSS

Stealth Tax Hikes

intelligence-spy-vs-spy

The editors of the Wall Street Journal point argue that the deal to avert the fiscal cliff contains a “Stealth Tax Hike” and that “the new $450,000 income threshold is a political fiction.”

Anyone still need a reason to abandon “grand bargains” and deals negotiated between this President and GOP Congressional leaders? Here it is: The revival of two dormant provisions of the tax code means the much ballyhooed $450,000 income threshold for the highest tax rate is largely fake.

The two provisions are the infamous PEP and Pease, which aficionados of stealth tax increases will recognize immediately as relics of the 1990 tax increase. Those measures, which limit deductions and exemptions for higher-income taxpayers, expired in 2010. The Obama tax bill revived them this week. It isn’t going to be pretty.

Under the new law, some of the steepest tax increases may fall on upper-middle class earners with incomes just above $250,000. Here’s why:

During the negotiations, the White House won a concession from Republicans to allow phaseouts for personal exemptions and limitations on itemized deductions, starting at an income of $250,000 for individuals and $300,000 for joint filers.

The Senate Finance Committee informs us that in effect the loss of the personal exemptions, currently $3,800 per family member, can mean a 4.4 percentage point rise in the marginal tax rate for a married couple with two kids and incomes above $250,000. A family with four kids in that income range faces about a six percentage point marginal rate hike. The restored limitations on itemized deductions can raise the tax rate by another one percentage point.

High-income Americans with incomes of more than $1 million may lose up to 80% of their itemized deductions for home mortgage payments, health care, state and local taxes—and charities. Cue the local symphony’s development office.

Add it together and families in the 33% tax bracket could see their effective marginal rate paid on each additional dollar earned rise to above 38%.

A store manager married to a dentist with a combined income of, say, $350,000 may pay a higher tax rate under the new law than if the tax code had simply reverted back to the Clinton-era rates that Mr. Obama championed. Those earning more than $450,000 would see their de facto tax rate rise to about 41% under the new law, not 39.6%. Add in the new ObamaCare investment taxes and the tax rate on interest income is close to 45%.

Now, fans of steeply progressive taxation might be thrilled with this. But, whatever the merits of having very high earners pay a higher tax rate—which I favor, up to a point—it should be achieved through honest debate and transparent public policy. Such, alas, is not the nature of our tax code.

There’s no obvious public policy rationale for a couple earning $299,999 to get a $3,800 exemption for each of their children but a couple earning $300,000 to lose it. Indeed, the former might have much less disposable income if they have one child and the latter have four. To the extent we want the tax code to subsidize the cost of raising children, it’s a rather perverse result.

The law should be transparent, creating a roadmap to guide personal conduct. But the tax code doesn’t work that way, because the accounting is done after the fact. Those of us with complicated finances (i.e., income from sources other than a fixed salary) simply don’t know from year to year how much income we’ll have.  So, we make financial decisions—including buying a house—based either on an average year or the most recent couple of years.

So, let’s say a couple averages $200,000 a year. It’s a fine living, putting them well into the upper middle class even in expensive metropolitan areas. They buy a house commensurate with their earnings in a good school district that’s more modest than many of their peers’ so as to save more for retirement. Within a couple of years, though, they’re making $250,000 and have their home mortgage deduction and dependent exemptions go away. Essentially, then, the fruits of their labor have been confiscated by the government for no crime other than working hard.

In an ideal world, the tax code would simply take incrementally more from the couple as their earnings increased. It would be perfectly reasonable, even, if by going over the $250,000 threshold they had to pay a higher rate on earnings above that amount.

There’s a decent argument to be made for limiting the mortgage deduction, for example. But the way to do it is to base it on the size of the mortgage, not the fluctuating income of the person paying it. That is, we could decide that we want to subsidize the cost of owning a middle class house but not a life of luxury. So, we could cap the deduction to the average interest paid each year to finance a $250,000 loan. Everybody who owned a home, whether it cost $150,000 or $15,000,000, would get the deduction. But the amount above $250,000 would be on the purchaser, not the Treasury. And, certainly, we could eliminate or reduce the subsidy for second and subsequent mortgages held simultaneously.

 

Related Posts:

About James Joyner
James Joyner is the publisher of Outside the Beltway, an associate professor of security studies at the Marine Corps Command and Staff College, and a nonresident senior fellow at the Atlantic Council. He's a former Army officer and Desert Storm vet. He has a PhD in political science from The University of Alabama. Views expressed here are his own. Follow James on Twitter.

Comments

  1. OzarkHillbilly says:

    In an ideal world, the tax code

    James, you are a dreamer. In an ideal world we wouldn’t have lobbyists writing the tax code.

    Like or Dislike: Thumb up 14 Thumb down 0

  2. Tsar Nicholas says:

    Taxes are a four letter word and federal income taxes are a bitch. Tax realities also are like tons of bricks. It’s not a coincidence that as a country we went around 125 years without federal income taxes. They’re a disaster. People know this. Well, most people, that is.

    Imagine how much easier things would be if we abolished all federal income and FICA taxes, repealed the 16th Amendment, and simply funded all federal operations with a national sales tax. No returns. No withholdings. No arbitrary cutoffs. No ironic disincentives to earn money. No ironic incentives to defer money or not to realize gains.

    Or how about a true flat tax? No deductions. No exemptions. No credits. Everyone pays a fixed percentage of income. The millionaire film producer and the multi-millionaire film actor pay a lot more dollars. But the malingerer who games the unemployment insurance system also pays into the system and thereby helps pull the wagon as opposed to serving as an anchor.

    Obviously, however, the chances of a Fair Tax or a true Flat Tax proposal getting enacted fall somewhere between zero and none.

    Last but not least if we want to talk about “stealth taxes” we also have to discuss Obamacare. How many people out there in Zombieland do you suppose are aware of the fact that Obamacare itself increased all manner and form of investment taxes by 3.8% on those earning more than $200,000 (single) and $250,000 (married filed jointly)? How much “debate” and “disclosure” about that new tax has there been?

    Poorly-rated. Helpful or Unhelpful: Thumb up 4 Thumb down 21

  3. rudderpedals says:

    I thought this was going to be an article about the upped employment taxes that affect every worker from the poorest schmo to Bloomberg. I’m not going to worry about the rareified one out of a hundred, they can take care of themselves even when their taxes go up 4%.

    Like or Dislike: Thumb up 14 Thumb down 0

  4. Bob Beller says:

    @rudderpedals: The upped employment taxes were just a restoration of the normal Social Security withholding tax that got a “holiday” to buy votes a few years back. Since SS is now taking in less than it’s paying out, we should be happy that tax went back to up keep the sinking ship afloat a few more years.

    The truth is, the taxes on the “upper income” folks won’t bring in anywhere close to the estimates because Washington still choses to believe that changes in tax policy don’t equate to changes in worker behavior.

    Like or Dislike: Thumb up 4 Thumb down 7

  5. john personna says:

    I’m pretty sure I knew about this during the negotiations, and I’m really not that much of a news junkie. I’m certainly not a wonk.

    There was a neat little table out there, with impacts for people in each income segment.

    Like or Dislike: Thumb up 4 Thumb down 0

  6. john personna says:

    The NYT published Impact of the Tax Deal January 1.

    That’s pretty much real-time, isn’t it?

    Like or Dislike: Thumb up 4 Thumb down 0

  7. john personna says:

    (All in all, I think I’m seeing a faux controversy, that 450K was not the only number, after all. We knew it wasn’t. From day 1.)

    Like or Dislike: Thumb up 1 Thumb down 0

  8. rudderpedals says:

    @Bob Beller:

    Since SS is now taking in less than it’s paying out, we should be happy that tax went back to up keep the sinking ship afloat a few more years.

    That’s bogus. Nothing is sinking. The payroll tax increase is broad, regressive, and counterproductive. No one should be happy about the increase.

    Like or Dislike: Thumb up 7 Thumb down 4

  9. al-Ameda says:

    I think I can safely say that we, all of us, are SHOCKED to learn that the Wall Street Journal is not pleased with the recently passed tax bill.

    Again, Americans are unhappy about having to pay for the government we have. Did people really believe that we were never going to have to pay for the wars in Iraq and Afghanistan?

    Highly-rated. Helpful or Unhelpful: Thumb up 18 Thumb down 0

  10. Just Me says:

    James I much prefer your method of limiting the mortgage deduction by the size of the mortgage than size of income (however not sure it would fly only because in some states $250k buys you a very small apartment in a large city while it practically buys you a mansion in rural Alabama.

    Like or Dislike: Thumb up 2 Thumb down 0

  11. OzarkHillbilly says:

    @al-Ameda:

    Did people really believe that we were never going to have to pay for the wars in Iraq and Afghanistan?

    Well, Dick Cheney did say that Iraq would be so grateful that they would pay us back the costs of the invasion. I suppose somebody believed him….

    Tho I never met him.

    Like or Dislike: Thumb up 9 Thumb down 0

  12. Rafer Janders says:

    @Just Me:

    (however not sure it would fly only because in some states $250k buys you a very small apartment in a large city while it practically buys you a mansion in rural Alabama.

    In a free market, that’s because a very small apartment in a large city is just as desirable, and hence worth as much, as a mansion in rural Alabama. If people actually wanted to live in rural Alabama, then mansions there would cost a lot. But very few want to live there, while very many want to live in large cities (as proven by the fact that they’re, you know, large).

    It seems counterintuitive, but the small apartment is every bit as much a luxury item as the rural mansion. Except the small apartment’s luxury comes from its location, while the mansion’s luxury comes from its size and interior fittings and in spite of its location.

    If two items cost the same, then they are worth the same.

    Like or Dislike: Thumb up 14 Thumb down 0

  13. @OzarkHillbilly:
    In an ideal world we wouldn’t have lobbyists writing the tax code.

    Yes, but in an “ideal world” all manner of things would be true, too.

    Every page of the tax code – all 73,000 of them – is a concession to a lobbyist of some kind. The tax code is a nonsensical nightmare. For crying out loud, Iraq has a fairer tax system than we do, and we put it there.

    But then, radical revanchist as I am, I think that the 16 Amendment, “clarifying” federal income tax, should be repealed.

    Note that the 16th amendment was titled a “clarification” of the status of income taxation, the reason being that the Constitution’s original phrasing was not exactly a model of clarity: “No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken” (Art. 1, Sec. 9). Until 1913, however, it was generally understood, and so ruled by federal courts, that the Congress could not levy taxes directly upon individuals’ incomes. It had to levy state governments for tax levied on personal incomes, and then only in proportion to each state’s ratio of the total enumerated in the last census.

    Put the states back in the business of taxing their residents to pay the federal government, as you will see how quickly federal spending is brought under control.

    Just a fantasy, I know.

    Like or Dislike: Thumb up 0 Thumb down 2

  14. john personna says:

    Per that Times article:

    – the middle 20% see a 1.5% reduction in after tax income

    – the top 20% see a 3.1% reduction in after tax income

    – the top 1% see a 6.5% reduction in after tax income

    That is absolutely shared sacrifice. That’s usually James’ first concern. That it’s all “class warfare” and “tax someone else.”

    Here we have taxes going up on everyone, something that should absolutely satisfy him. But oops, no, they went up too much on rich people, really biting above 1%. The bastards.

    Like or Dislike: Thumb up 10 Thumb down 0

  15. JKB says:

    Essentially, then, the fruits of their labor have been confiscated by the government for no crime other than working hard.

    Where have you been? That is Obama’s redistribution philosophy. Besides, you tax what you want less of, so such inegalitarian efforts will be taxed in the Obama-nation.

    Like or Dislike: Thumb up 0 Thumb down 7

  16. john personna says:

    It really is pretty funny ….

    First “you can’t balance the budget taxing just the top 1%!”

    Then “hey, you didn’t tell us you were going to tax everyone else!”

    Make up your mind already ;-)

    Highly-rated. Helpful or Unhelpful: Thumb up 16 Thumb down 0

  17. Rafer Janders says:

    Within a couple of years, though, they’re making $250,000 and have their home mortgage deduction and dependent exemptions go away. Essentially, then, the fruits of their labor have been confiscated by the government for no crime other than working hard.

    Um, there’s not necessarily any correlation between “working hard” and earning more money. People can move up in income because of seniority, because the particularly industry or field they’re in is doing well, because their company is doing well in spite of that individual’s own efforts, etc. etc. I made more money in 2012 than I did in 2011. Did I work any harder? No, about the same. But some deals paid off, so I shared in the profits.

    Like or Dislike: Thumb up 11 Thumb down 0

  18. Rafer Janders says:

    Within a couple of years, though, they’re making $250,000 and have their home mortgage deduction and dependent exemptions go away. Essentially, then, the fruits of their labor have been confiscated by the government for no crime other than working hard.

    Let’s just note that using the example of a store manager and a dentist is meant to make them sound middle class to the inattentive reader. But a couple with $350K in income is in the top 1% of households per income, and therefore are quite rich, no matter what the source of that income is.

    Like or Dislike: Thumb up 10 Thumb down 0

  19. This is, of course, just a fundamental reflection of the fact that any statement of “$X of income pays Y% of income tax” is almost always never correct due to a long list of caveats. It is one of the many reasons that a reasonable discussion on tax policy is so bloody difficult.

    Like or Dislike: Thumb up 4 Thumb down 0

  20. JKB says:

    @Rafer Janders: But some deals paid off, so I shared in the profits.

    Well, there you go, You can feel good about the new taxes and paying your fair share. In fact, your taxes on your excess earning should be 100% since you didn’t earn the extra income.

    Like or Dislike: Thumb up 0 Thumb down 8

  21. Rafer Janders says:

    Within a couple of years, though, they’re making $250,000 and have their home mortgage deduction and dependent exemptions go away. Essentially, then, the fruits of their labor have been confiscated by the government for no crime other than working hard.

    Also, too, that couple isn’t necessarily entitled to any exemption — an exemption, by definition, is a sort of gift. The tax exemptions are simply policy choices made by the government in order to encourage certain behaviors. It’s absurd and Orwellian to call the choice not to grant a certain exemption a “confiscation.”

    Say I give James a bottle of $100 bottle Scotch on his birthday every year. Then one year I decide not to give it to him, and he has to go out and spend his own money to buy the same bottle. Have I thereby confiscated $100 of his income?

    Like or Dislike: Thumb up 8 Thumb down 0

  22. Rafer Janders says:

    @JKB:

    Well, there you go, You can feel good about the new taxes and paying your fair share.

    I sure do. The money I pay in taxes helps this great country run. (Also, too, I pay more in taxes every quarter than you earn all year).

    In fact, your taxes on your excess earning should be 100% since you didn’t earn the extra income.

    You don’t understand how taxes work, do you?

    Like or Dislike: Thumb up 6 Thumb down 0

  23. john personna says:

    @Rafer Janders:

    I really thought James was better than “confiscation.”

    But seriously, his scenario is not about a building contractor with a good year, and an unsteady income. He’s mapped out a couple that have steady, increasing(!), income over successful careers. They made $200K for 10 years (that’s 2M gross, kids), and then look to $250K+ for another 10 years (another $2.5M gross). Assuming they can work 30 years we might be talking 6 to 8 million in gross income, without even considering accruing returns on retirement accounts.

    Poor them, right? How will they ever survive just on Social Security in retirement!

    Like or Dislike: Thumb up 11 Thumb down 0

  24. john personna says:

    Also note that James wrote “a house commensurate with their earnings.”

    Let’s be real, that this is a social expectation and not vital to survival, or necessarily the best financial strategy.

    Like or Dislike: Thumb up 8 Thumb down 0

  25. john personna says:

    (If you put 250K income into a CNN’s calculator, they tell you to buy a house costing 1.2-1.4 million dollars.)

    Like or Dislike: Thumb up 2 Thumb down 0

  26. Rafer Janders says:

    @john personna:

    I really thought James was better than “confiscation.”

    Ever since he argued with me a few weeks ago that Mike Dukakis and Walter Mondale were “hard left” candidates, I have not entertained the same thought.

    Like or Dislike: Thumb up 5 Thumb down 0

  27. James Joyner says:

    @OzarkHillbilly: Agreed.

    @rudderpedals: The expiration of the payroll tax holiday was well advertised.

    @john personna: But people don’t understand that the tax code has all of these weird trap doors. The AMT is the most discussed and even that’s largely a mystery to most.

    @Rafer Janders: It’s possible to earn hard and not make a lot of money and vice versa. My point is that people are being seriously penalized for doing what they’re supposed to do through trap doors in the tax code. That’s a very different thing than a transparent policy where the tax code rises incrementally at various well-publicized thresholds.

    @Rafer Janders: The exemptions aren’t a gift, they’re widely advertised public policy incentives. We want people to have kids and buy houses. So, we give them a tax break for doing that. It’s not my preferred method, but we’ve been doing it for decades.

    @john personna: I’m not making the “taxes are theft” argument. I’m saying the effect is to take their money from them when they’re doing exactly what it is that society has trained them to do since childhood; Work hard to advance.

    @john personna: Sure. Again, I think it’s perfectly reasonable that those of us who live in much more expensive than average houses should stop being subsidized at some point above average. That’s a very different thing than the subsidy magically disappearing because you’ve accidentally hit some threshold.

    @Rafer Janders: There’s something to that but it’s not quite right. A lot of people, frankly, would rather live in rural America than deal with the traffic and other hassles of metropolitan living but nonetheless move to the big city because that’s where the jobs are. Housing costs more in Manhattan and DC because they’re a scarce resource and plenty of money to bid up the cost; they’re cheap in Alabama because it’s sparsely populated and not affluent.

    Like or Dislike: Thumb up 0 Thumb down 1

  28. Rafer Janders says:

    @john personna:

    That’s crazy to me. I’d never buy a place more than 3x to 4x my annual income, with a very strong preference for the 3x end of the scale.

    Like or Dislike: Thumb up 1 Thumb down 0

  29. Rafer Janders says:

    @James Joyner:

    A lot of people, frankly, would rather live in rural America than deal with the traffic and other hassles of metropolitan living but nonetheless move to the big city because that’s where the jobs are.

    If they’ve moved to the big city, then they would not rather live in rural America, by definition. They value having a job and earning money more than they value the supposed virtues of small town life. What people choose to do is a pretty good indicator of what they want to do.

    Housing costs more in Manhattan and DC because they’re a scarce resource and plenty of money to bid up the cost; they’re cheap in Alabama because it’s sparsely populated and not affluent.

    Exactly what I said. Life in Mahattan and DC is a desirable resource, and hence more expensive. Living in Alabama is not desirable — if it was, Alabama would not be sparsely populated.

    Like or Dislike: Thumb up 7 Thumb down 1

  30. Rafer Janders says:

    @James Joyner:

    There’s something to that but it’s not quite right. A lot of people, frankly, would rather live in rural America than deal with the traffic and other hassles of metropolitan living but nonetheless move to the big city because that’s where the jobs are.

    Isn’t this really just a more roundabout version of saying “pay attention to what I say, don’t pay attention to what I really do”?

    Like or Dislike: Thumb up 4 Thumb down 0

  31. john personna says:

    @Rafer Janders:

    I strongly suspect that the people most concerned with taxes on $250K incomes are just idiots with money. Really, both meanings.

    I have related that when I was driving across country the station I could pick up in west Texas was a Christian financial advice show. Call after call came from people with something like $250K in income, who had bought the house “commensurate with their income” and leased a couple cars “commensurate with their income,” and didn’t know where the money went.

    Easy in that situation to blame it on taxes. I mean, otherwise you might have to stop and think about how you mismanaged a $250K income stream …

    Like or Dislike: Thumb up 9 Thumb down 0

  32. john personna says:

    @James Joyner:

    There is no national interest in driving homes above $1M.

    Like or Dislike: Thumb up 4 Thumb down 0

  33. Rafer Janders says:

    @James Joyner:

    The exemptions aren’t a gift, they’re widely advertised public policy incentives.

    Doublespeak — “it’s not a gift, it’s a widely advertised incentive”. Huh? It’s an exemption from what many others pay.

    If I tell my son that if he earns an A I’ll pay him $20, that’s both a “widely advertised policy incentive” and a gift, and if next year I change my policy to only pay him $10, I have not “confiscated” $10 of his income, since he had no inherent right to the $20 in the first place.

    We want people to have kids and buy houses. So, we give them a tax break for doing that. It’s not my preferred method, but we’ve been doing it for decades.

    Exactly, a tax “break.” Off taxes they would otherwise normally owe. So it’s not money they are entitled to — it’s a choice we’ve made to let them off the hook, as compared to others who remain on the hook.

    Like or Dislike: Thumb up 8 Thumb down 0

  34. Rafer Janders says:

    @James Joyner:

    My point is that people are being seriously penalized for doing what they’re supposed to do through trap doors in the tax code.

    And my point is that not continuing to grant high income earners an exemption — i.e., a gift — that others never get in the first place is not “penalizing” them. It’s just putting them back on an even footing with everyone else.

    If anyone is being penalized, it’s the non-homeowners and non-parents who never get the tax exemption in the first place.

    Like or Dislike: Thumb up 8 Thumb down 0

  35. Edmondo says:

    The old Buffett Rule was that Warren pays a lower tax rate thanhis secretary. The new Buffett Rule is that Warren now pays a lower rate thanone of his Vice Presidents.

    Can you figure out who the really won the last round of tax changes?

    Like or Dislike: Thumb up 0 Thumb down 0

  36. john personna says:

    @Rafer Janders:

    When we get to $200K incomes, people are “being seriously penalized for” for keeping up appearances for their peer group.

    I forgot to add 2-3 jet set vacations you need to brag every year.

    Like or Dislike: Thumb up 7 Thumb down 0

  37. rudderpedals says:

    @James Joyner: Bob Beller said the same thing. The distinction between the end of the Bush tax cut holiday and the payroll tax cut holiday is not clear to me. Perhaps if I rephrase it as a choice. If you were going to choose which taxes to increase would you choose to up the least regressive ones?

    Like or Dislike: Thumb up 2 Thumb down 0

  38. anjin-san says:

    @JKB

    That is Obama’s redistribution philosophy.

    Compared to Eishenhower, Obama is a piker in the “redistribution” department. So how about it, was one of the greatest Americans of the 20th century some kind of commie?

    Like or Dislike: Thumb up 10 Thumb down 0

  39. Mikey says:

    @rudderpedals: The payroll tax “holiday” was instituted only a couple years ago, vs. 2001 and 2003 for the “Bush tax cuts.” That they expired on the same day was merely coincidental.

    We can’t choose to keep payroll taxes at the “holiday” level because if we do we need to suck money out of the general fund to make up the difference. Social Security is supposed to be self-funding.

    Like or Dislike: Thumb up 0 Thumb down 1

  40. Coop says:

    @rudderpedals:

    The personal income tax rates are much more visible politically, so will obviously be at the center of the debate. Also, neither side wanted to make the payroll tax holiday permanent. Democrats fear that depriving social security of funding would make it more vulnerable to being cut. Republicans don’t like cutting it b/c they see it as the equivalent of a private pension contribution.

    I personally think that the payroll tax holiday should have been extended for economic reasons. Matt Yglesias hits the nail on the head here.

    One problem with the liberal vision of the payroll tax as “regressive” is that it’s contradictory. For low income filers, it is seen as functionally equivalent to their income tax, so they shouldn’t be blamed for not paying federal income tax. But for high income filers, it’s not viewed as part of the tax system, but instead is looked at in isolation of all the other taxes they pay, making it “regressive.”

    Like or Dislike: Thumb up 0 Thumb down 1

  41. JKB says:

    @anjin-san: is a piker in the “redistribution” department.

    Wait, your argument is because DC politicians adopted socialists philosophy in the mid-20th century that it is still a good idea now. After FDR, got the progressive abuse going hot, both parties jumped on board. They obscured it with rants against Communism even as they knowingly or unknowingly, pushed the more insidious socialism upon Western populations.

    That Communism is essentially negative, confined to the prohibition that one shall not have more than another. Socialism is positive and aggressive, declaring that each man shall have enough.

    It purposes to introduce new forces into society and industry; to put a stop to the idleness, the waste of resources, the misdirection of force, inseparable, in some large proportion of instances, from individual initiative; and to drive the whole mass forward in the direction determined by the intelligence of its better half.

    Socialism is seductive. Living off mom and dad is seductive. Well, until you run out of other people’s money. But the real debate isn’t which “-ism” to embrace but how to balance capitalism, which produces wealth, with social policy, which assists those who falter, that can become socialism if not restrained.

    My current feeling is we are leaning to far away from wealth creation, which has raised billions out of real poverty and toward the looting of wealth that will leave all poorer in the end.

    Like or Dislike: Thumb up 0 Thumb down 6

  42. anjin-san says:

    Yes JKB, we all know what Fox and Friends have told you. A fairly minor tax increase (from historic lows) on a small percentage of the population is communism.

    I have another word for you – “deadbeat” – it’s what you call people who try and avoid paying bills that they are responsible for.

    Highly-rated. Helpful or Unhelpful: Thumb up 17 Thumb down 0

  43. john personna says:

    @Coop:

    Certainly payroll tax in isolation is regressive. But isn’t that a little like the conservative “half don’t pay income tax” argument?

    What we want is a chart of total tax burden, by income.

    Like or Dislike: Thumb up 3 Thumb down 0

  44. Just Me says:

    Say I give James a bottle of $100 bottle Scotch on his birthday every year. Then one year I decide not to give it to him, and he has to go out and spend his own money to buy the same bottle. Have I thereby confiscated $100 of his income?

    Problem with this analogy is James could just choose to have the $100 bottle of scotch that year. If James decides he doesn’t want to pay his taxes at best he gets hit with penalties and at worse he is taken to court of evading his taxes.

    Like or Dislike: Thumb up 0 Thumb down 5

  45. john personna says:

    @JKB:

    Socialism is seductive.

    Actually, deficit spending is seductive. When Republicans cut taxes again and again, while not cutting spending, that is seductive.

    Of course it only works until you hit some lower bound in taxation (which I think we did with the Bush temporary tax cuts). And then you need a new game.

    Like or Dislike: Thumb up 9 Thumb down 0

  46. @Just Me:

    Problem with this analogy is James could just choose to have the $100 bottle of scotch that year. If James decides he doesn’t want to pay his taxes at best he gets hit with penalties and at worse he is taken to court of evading his taxes.

    Not at all. The bottle of scotch is an analogy for tax deductions, not taxes. No one is required to request the deductions any more than, in the analogy, one has to accept the bottle of scotch.

    Like or Dislike: Thumb up 5 Thumb down 0

  47. Mikey says:

    @john personna:

    What we want is a chart of total tax burden, by income.

    What you actually need is 51 of them, because they differ between states.

    And within each state you’ll need to subdivide even further, because of differing levels of local taxes (property taxes, locality income taxes, etc.). The county or county-equivalent seems like a good differentiator.

    So to get the most accurate picture, you’ll need about 3,000 such charts.

    Is it any wonder it’s so difficult to discuss this issue?

    Like or Dislike: Thumb up 1 Thumb down 0

  48. Coop says:

    @john personna:

    Completely agree.

    Like or Dislike: Thumb up 1 Thumb down 0

  49. rudderpedals says:

    @Mikey:

    Social Security is supposed to be self-funding.

    Yes. Taxes should be raised elsewhere to offset it, perhaps a financial transaction tax, far higher mineral extraction royalties, pollution taxes, the sorts of things universally believed to need inhibiting because of externally imposed costs or unreasonable windfalls.

    @Coop: I’m sorry, I don’t get the functional equivalence idea. I call regressive a situation where the guy grossing $200K is paying a lower effective payroll tax rate than the guy grossing $20K.

    Like or Dislike: Thumb up 5 Thumb down 0

  50. john personna says:

    @Mikey:

    OK, so maybe it needs an “infographic” … but it’s a manageable problem.

    Like or Dislike: Thumb up 0 Thumb down 0

  51. anjin-san says:

    Socialism is seductive.

    You know what’s seductive? Living in a country where you don’t step over dead bodies in the street. Where there is adequate medical care. Where poor people are not so desperate that they simply don’t care and turn to violence. Where the well to do don’t have to hide behind high walls and barbed wire. Where we have adequate infrastructure. Where we don’t have piles of rubble in the streets years after a disaster.

    Should I go on?

    Highly-rated. Helpful or Unhelpful: Thumb up 15 Thumb down 0

  52. Coop says:

    @rudderpedals:

    I was just saying that it’s only regressive if you look at the payroll tax in isolation from all other taxes. Similar to the conservative claim that 47% pay no federal income tax. Both are technically true, but what we care about is total tax bill, not specific rates in isolation from all others.

    @john personna:
    And if you look at total tax burden among income groups, this notion that we have a country of makers paying a lot of tax v.s. takers paying little to nothing is clearly incorrect.

    Like or Dislike: Thumb up 3 Thumb down 0

  53. bill says:

    @anjin-san: Every American should see the 3rd world some time- they really appreciate coming home!

    Like or Dislike: Thumb up 2 Thumb down 0

  54. Mikey says:

    @rudderpedals: Well, then it ceases to be a self-funding social insurance program and becomes a generic wealth-transfer welfare program.

    Which it is, anyway–it’s a massive transfer of wealth from the working young to the retired old–but at least we could dispense with the current fiction that it’s something else.

    Personally, I think we should replace it with a means-tested benefit paid from the general fund, but I’m probably pretty much alone in that opinion…

    Like or Dislike: Thumb up 0 Thumb down 0

  55. john personna says:

    @Coop:

    Good charts. The last one is very clear, and clearly refutes that we (effectively) engage in class warfare in the US.

    Like or Dislike: Thumb up 3 Thumb down 0

  56. anjin-san says:

    @ bill

    Too bad your party does not want to pay the bills associated with the quality of life we enjoy here.

    Like or Dislike: Thumb up 6 Thumb down 0

  57. Rafer Janders says:

    @bill:

    Every American should see the 3rd world some time- they really appreciate coming home!

    Just like every American should visit Europe, East Asia and Australasia sometime to appreciate what decaying infrastructure and public services we have over here.

    Try taking the express train from, for example, Zurich Hauptbannhof to Zurich airport, and then landing at JKF and being faced with either an overpriced taxi ride on the potholed LIE or a convoluted hour plus three transfer train and subway trip into Manhattan, and then tell me which is the superior system….

    We get the services we pay for.

    Like or Dislike: Thumb up 12 Thumb down 0

  58. Ben Wolf says:

    @Mikey:

    Which it is, anyway–it’s a massive transfer of wealth from the working young to the retired old–but at least we could dispense with the current fiction that it’s something else.

    Except that it isn’t, and there is no good reason not to retain Social Security as it currently exists.

    Like or Dislike: Thumb up 7 Thumb down 0

  59. Rafer Janders says:

    @Mikey:

    From James Surowiecki:

    “Unlike most government programs, Social Security and, in part, Medicare are funded by payroll taxes dedicated specifically to them. Some of the tax revenue pays for current benefits; anything that’s left over goes into trust funds for the future. The programs were designed this way for political reasons. When F.D.R. introduced Social Security, he calculated that funding it through a payroll tax rather than out of general tax revenue would make people think of the program not as welfare but as an entitlement—as something that they had paid for and had a right to…..

    “But the trust-fund strategy has an Achilles’ heel: funds can run out of money….The image of empty coffers is a powerful one: half of all Americans aged between eighteen and twenty-nine don’t think that Social Security will exist when they retire. That’s a bizarre thing to believe about an important government program. No one ever says, “I don’t think the U.S. Army will be there when I get old” or talks about the Defense Department “going broke.” We assume that there will always be a need for the military, and that we’ll end up paying the taxes that are necessary to fund it. But, because Social Security and Medicare have always been self-supporting, it’s easy to believe that they’ll just vanish if the trust funds dry up. This isn’t the case. Relatively minor tweaks to Social Security will allow it to keep paying full benefits for many decades. And, if we wanted, we could supplement funding for both programs with general government revenue. That’s what most European countries do, and, indeed, parts of Medicare are already paid for out of general revenue. The only way that Social Security and Medicare can go “bankrupt” is if we let them.”

    Read more: http://www.newyorker.com/talk/financial/2012/12/24/121224ta_talk_surowiecki#ixzz2HEIjecKN

    Like or Dislike: Thumb up 3 Thumb down 0

  60. rudderpedals says:

    @Coop: OK I understand what you’re saying. What I do is when the lunatics complain about 47% having no skin in the game or not paying federal income tax I point and laugh.

    @Mikey: Well no you are not alone. I agree with all of that, even the lonely sounding part at the end. The real problem in this country is that folks like rudderpedals and Mikey aren’t at the table.

    Like or Dislike: Thumb up 1 Thumb down 0

  61. Ben Wolf says:

    @Rafer Janders: The audio is poor, but Alan Greenspan defined why money is not the problem with Social Security back in 2005, and made Paul Ryan look like the incompetent he is in the process:

    http://www.youtube.com/watch?v=GdOsybbBVEU

    Like or Dislike: Thumb up 5 Thumb down 0

  62. JKB says:

    @anjin-san:

    You know there are programs that can improve your reading comprehension. Some of them are even your favorite, government programs.

    Like or Dislike: Thumb up 1 Thumb down 5

  63. JKB says:

    @john personna: Socialism is seductive.

    Actually, deficit spending is seductive.

    And when you are seduced by both, you end up where we are now. Of course, the real solution is deep painful cuts in government, since this is the hard part to do, followed by tax increases that evaporate if new programs are started or funding is increased outside a few fundamental government services.

    But instead we get tax increases and maybe the token slice off some obscure program growth. Oh and the tax increases, as we see here are wider than the MSM will report and the spending cuts always end up as cash in some crony’s pocket.

    Like or Dislike: Thumb up 0 Thumb down 6

  64. Mikey says:

    @Ben Wolf: Social Security is a pay-as-you-go system. There’s no big pool of money saved up from which benefits are paid. The money coming in from those currently working goes out to retirees immediately. Any excess in the so-called “trust fund” is sucked out by Congress to pay for other stuff. At some point either the reverse will have to happen (as it has the last two years during the payroll tax holiday) or payroll taxes will have to increase. SCOTUS has already ruled you are not entitled to a payout (Flemming v. Nestor, 1960).

    @Rafer Janders: Pretty much supports my point, I think. Note that I never asserted SS would be “going bankrupt.” It’s a legislative structure and there’s no reason we can’t modify the legislation to keep it solvent.

    Like or Dislike: Thumb up 0 Thumb down 0

  65. Ben Wolf says:

    @Mikey:

    Social Security is a pay-as-you-go system. There’s no big pool of money saved up from which benefits are paid.

    Sure there is. The fund is full of Treasurys, which are, in fact, money.

    At some point either the reverse will have to happen (as it has the last two years during the payroll tax holiday) or payroll taxes will have to increase.

    No, this doesn’t have to happen at all. Money is not an issue here. The problem with Social Security in the future is something you haven’t even obliquely referenced.

    Like or Dislike: Thumb up 2 Thumb down 0

  66. JKB says:

    @Ben Wolf: Sure there is. The fund is full of Treasurys, which are, in fact, money.

    Treasuries are not money, they are claims against cash in the future. In this case, claims against the general fund that is funded by income and other taxes.

    Now, that might mean there is something of value there if the same people who must enforce the claims against the general fund weren’t the same people who will have to pay the claims from the general fund. Oh, and they didn’t have license, via SCOTUS decision, to alter the terms of the Social Security program without challenge of citizens who’ve paid into the program.

    From a Life Magazine Social Security article 1939:

    The joker in this is that the Government has been spending Social Security tax money for ordinary expenses and putting its own I.O.U.’s (i.e., bonds) in the reserve fund. Thus when the time came to pay old-age annuities partly out of the interest on the bonds the money could be raised only by taxing the people a second time.

    When President Roosevelt signed the Social Security Act just four years ago this month, he hailed it truly as a milestone in American history. Nobody, however, regarded the Act as much more than a long first step toward its objectives, a tentative plan to be revised and expanded with experience.

    Like or Dislike: Thumb up 0 Thumb down 4

  67. Mikey says:

    @Ben Wolf:

    No, this doesn’t have to happen at all. Money is not an issue here. The problem with Social Security in the future is something you haven’t even obliquely referenced.

    I think the problem with Social Security in the future is its current funding structure won’t be sufficient to pay full benefits starting in 2033. We’ll have to raise the retirement age further, increase payroll taxes, supplement from the general fund, or some combination thereof.

    Did you have something else in mind? If so, please state it.

    Like or Dislike: Thumb up 0 Thumb down 0

  68. Ben Wolf says:

    @JKB:

    Treasuries are not money, they are claims against cash in the future. In this case, claims against the general fund that is funded by income and other taxes.

    A $14 trillion repo market says otherwise, as does the global use of Treasurys as a medium of exchange. Treasurys are not claims against cash; saying they are is equivalent to saying a savings account is a claim against cash. That’s what Treasurys are, savings accounts with a specified value which can be used for the purchase of real wealth.

    Like or Dislike: Thumb up 5 Thumb down 0

  69. Ben Wolf says:

    @Mikey: Did you listen to the one-minute video to which I linked?

    http://www.youtube.com/watch?v=GdOsybbBVEU

    Like or Dislike: Thumb up 0 Thumb down 0

  70. john personna says:

    @JKB:

    You whole argument seems very lost. You don’t have any numbers, do you? Just feelings?

    The numbers (from Coop above) show that Americans are broadly taxed. There are no underclass moochers who live on the dole all their lives.

    People live an arc, enjoying public school, getting jobs, and retiring.

    Where assistance primarily comes in is in the bumps and hard knocks along the way. We just had extended unemployment benefits, for instance. But those are capped. They are not for life.

    Look where the money goes. It is overwhelmingly toward medicaid, then food stamps, and then down to smaller programs.

    Like or Dislike: Thumb up 6 Thumb down 0

  71. john personna says:

    @JKB:

    You can do two accounting views. They both tell you something. A Social Security audit view tells you about the health of the program and the likelihood of transfer from general funds. In that view, sure, the Treasuries are assets. In the second view you to a US Government audit view, and the Treasuries are a wash. They are money owed from the right hand to the left.

    You just can’t cross the views. That’s what makes no sense. You can’t say SS is broke because the Government holds its accounts.

    Like or Dislike: Thumb up 4 Thumb down 0

  72. Mikey says:

    @Ben Wolf: Greenspan: “I wouldn’t say the pay-as-you-go benefits are insecure in the sense that there is nothing to prevent the
    Federal Government from creating as much money as it wants and
    paying it to somebody.”

    First, he confirms my assertion that Social Security is a pay-as-you-go system.

    Second, he’s basically saying “it’ll never go broke because we can just print as much money as we need to fund it.” I don’t disagree with that, but I think it would be far better, and much less inflationary, to take the other measures I mentioned. (He did follow up by saying it’s important to make sure there’s actually something tangible created that the cash can buy, but still.)

    Or just institute a means-tested benefit paid out of the general fund. Doing so would certainly eliminate the possibility of anyone saying “the Social Security Trust Fund is going broke and Social Security won’t be there for our young people!!!!!”

    Like or Dislike: Thumb up 0 Thumb down 0

  73. john personna says:

    @Mikey:

    But again, the accounting view doesn’t change the big picture. If you decide to forget the trust fund, because it wasn’t real, you just reduced outstanding Treasuries, and government obligations.

    (I agree with means testing, really for any government aid to individuals.)

    Like or Dislike: Thumb up 0 Thumb down 0

  74. Ben Wolf says:

    @Mikey:

    Second, he’s basically saying “it’ll never go broke because we can just print as much money as we need to fund it.

    That wasn’t the important point Greenspan was making.

    Why do you think taxes will have to go up in the future to sustain social benefits? Why do you think tax rates as currently set will not be sufficient to maintain SS for future generations?

    Like or Dislike: Thumb up 1 Thumb down 0

  75. Mikey says:

    @john personna:

    But again, the accounting view doesn’t change the big picture. If you decide to forget the trust fund, because it wasn’t real, you just reduced outstanding Treasuries, and government obligations.

    If we moved to a straight-up means-tested social welfare program, we might have issues of deficit spending (which we probably always will anyway) but we’d have a far clearer view of how the money flows. We’d also be able to adjust much more quickly to conditions as they change over decades.

    If it’s already a de facto pay-as-you-go social welfare program, why shouldn’t we make it de jure as well?

    Like or Dislike: Thumb up 0 Thumb down 0

  76. Mikey says:

    @Ben Wolf:

    Why do you think taxes will have to go up in the future to sustain social benefits? Why do you think tax rates as currently set will not be sufficient to maintain SS for future generations?

    The 2012 OASDI Trustees Report

    From the report:

    The Social Security outlook has worsened significantly relative to last
    year’s report. The actuarial deficit in its combined trust funds is now 2.67
    percent of taxable payroll, the highest recorded since the last major
    Social Security financing reforms roughly three decades ago. The singleyear
    deterioration in the 2012 report is the largest recorded since the
    1994 report. While the projected depletion date (2033) for the combined
    trust funds is not the earliest recorded since the 1983 reforms, we are nevertheless
    now closer to the point of projected depletion than we have been
    since enactment of those reforms. The combined Social Security trust
    funds’ balance continues to grow in nominal terms, but has been declining
    generally relative to the total cost of paying benefits since 2008, and will
    be shrinking after 2012 in real (inflation adjusted) terms. Thus by almost
    any objective measure, the financial health of the Social Security system
    has entered a concerning decline.

    This doesn’t say–and I didn’t say–that it will be impossible to maintain Social Security for future generations. What it DOES say is unless we make the adjustments I mentioned–payroll tax increase, raised retirement age, transfers from the general fund, or a combination thereof–Social Security will not be able to completely meet its anticipated obligations.

    Like or Dislike: Thumb up 0 Thumb down 0

  77. Ben Wolf says:

    @Mikey:

    The combined Social Security trust funds’ balance continues to grow in nominal terms, but has been declining generally relative to the total cost of paying benefits since 2008, and will be shrinking after 2012 in real (inflation adjusted) terms.

    This is a partial answer, but doesn’t really get to the heart of the issue as to why Social Security is claimed to be in dire fiscal straights.

    I’m going to go ahead and take a stab at the answer most people would give to the questions I ask above.

    The argument one usually hears is some form of the following: “There will be too many retirees and not enough working people to pay for Social Security.” In other words there won’t be enough money flowing into the trust fund because the ratio of retirees to workers might rise to something like 1.5 retirees per worker, or 2 retirees per worker. Based on that one might conclude, not without reason, the problem is not enough tax revenue.

    But let’s take that argument further. What if we imagined there would be 15 retirees per worker. Well the same logic holds, not enough people paying in to support people already retired. What about 1,000 retirees per worker?

    What about going to the outrageous extreme of 300,000,000 retirees and exactly one worker to support them? Obviously that one working person would be phenomenally busy; they would have to grow all the food, build all the cars, run all the hospitals and clinics and ten thousand other jobs necessary to provide the real goods and services that Social Security is designed to pay for.

    In that situation, can anyone seriously make the argument the problem is getting more money to that one worker? Well of course not. Getting more money into the trust fund to pay the only worker in America isn’t going to be helpful, it’s just going to generate inflation as it chases far too few goods and services. And that’s exactly what the true concern is for the future of Social Security. Will our economy produce enough of the things and the trained personnel to provide our retirees with the standard of living we want them to have?

    Remember that money is not a concern. To quote the Federal Reserve Bank of St. Louis:

    As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets (by virtue of never facing insolvency and paying interest rates over the inflation rate, e.g., TIPS—Treasury Inflation-Protected Securities). Together with the unusually high, but manageable, level of the current debt, these facts imply that the current U.S. government can wait out any short-term economic developments until long-run growth is restored. Further, without an immediate need to drastically reduce the debt, the mechanism between high debt and slow growth loses most of its credibility.

    The money with which to pay entitlement outlays will always be available to us. What we cannot know is whether the real productivity will be available at a future date. So the entire discussion of how to pay for it entirely misses the point.

    Like or Dislike: Thumb up 5 Thumb down 0

  78. OzarkHillbilly says:

    @anjin-san: You forgot where we don’t live in Columbia, El Salvador, Angola, Somalia, or Thailand.

    Like or Dislike: Thumb up 0 Thumb down 0

  79. OzarkHillbilly says:

    @bill:

    Every American should see the 3rd world some time- they really appreciate coming home!

    I have spent more than a little bit of time sh!tting my colon out my ass in the 3rd world. I can tell you, the policies you don’t want to pay for????

    Yah. They don’t pay for them there either.

    Like or Dislike: Thumb up 2 Thumb down 0

  80. Just Me says:

    Personally, I think we should replace it with a means-tested benefit paid from the general fund, but I’m probably pretty much alone in that opinion…

    This would go over about as well as an elephant in the kitchen but I do think one way to save social security for those who need it most would be to means test it, or at least raise the maximum amount the tax is applied to for wealthier people (yes it turns the system into something different, but I really would rather see them do something like this than ask 70 year olds in physical labor intensive fields to keep working so the millionaire can collect his social security check).

    I think the system is pretty close to maxing out the realistic age at which people can be expected to work to.

    Like or Dislike: Thumb up 2 Thumb down 0

  81. anjin-san says:

    @ JKB

    Since you bring it up, I had college level reading scores in the 5th grade, and people pay me fairly well to write on occasion. It’s not my fault that your comments meander back and forth between incomprehensible babble and warmed over right wing boilerplate.

    Like or Dislike: Thumb up 5 Thumb down 0

  82. anjin-san says:

    raised retirement age

    That’s a nice bromide, but the reality is that every year that goes by, it is harder for people to stay employed. Is a journeyman roofer still going to be able to work at 67? How about a programmer? You can get someone half that age with twice the energy for half the pay.

    Like or Dislike: Thumb up 7 Thumb down 0

  83. anjin-san says:

    @ JKB

    Socialism

    Have you every looked this word up in the dictionary? I don’t think you know what it means.

    Like or Dislike: Thumb up 3 Thumb down 0

  84. OzarkHillbilly says:

    @anjin-san:

    Is a journeyman roofer still going to be able to work at 67?

    Here’s a hint: No.

    Like or Dislike: Thumb up 5 Thumb down 0

  85. Mikey says:

    @anjin-san: Well, as Just Me said, we’ve pretty much reached the maximum age we could expect most people to work to.

    An advantage of my proposal to move to a means-tested benefit is we could adjust to each retiree’s needs without having to screw around with the retirement age.

    Like or Dislike: Thumb up 0 Thumb down 0

  86. anjin-san says:

    Mikey – means testing is a fine idea. Upping the retirement age will not work in the real world. The problem of un/underemployment for workers in their 60s who have not retired is going to get worse, not better.

    Like or Dislike: Thumb up 2 Thumb down 0

  87. Mikey says:

    @Ben Wolf:

    The money with which to pay entitlement outlays will always be available to us. What we cannot know is whether the real productivity will be available at a future date. So the entire discussion of how to pay for it entirely misses the point.

    I think it makes a difference because of the way Social Security is currently constructed, because of the “trust fund.” There’s an expectation there will be enough in the trust fund to pay benefits without having to pull from the general fund, and regardless of how we create the money, starting in 2033 there will not be enough in the trust fund to make 100% of the benefits.

    That’s why Greenspan put it in terms of pay-as-you-go. I believe Social Security is there already, but as an accounting construct it isn’t, and if it isn’t then it does matter whether the trust fund can pay the full bill.

    Like or Dislike: Thumb up 0 Thumb down 0

  88. Mikey says:

    @anjin-san:

    The problem of un/underemployment for workers in their 60s who have not retired is going to get worse, not better.

    There will be a great deal more of them in the near future.

    I was surprised when my aunt, age 72, got a job recently. Sad that she still has to work at that age, but happy someone valued her experience enough to hire her.

    Like or Dislike: Thumb up 1 Thumb down 0

  89. Just Me says:

    I think the decision to keep raising the retirement age is because the people making the decision generally have brain but not physical labor intensive jobs. A 70 year old lawyer can keep working if he has to, but a 70 year old steel walker, roofer or shoot even a cop isn’t all the safe or realistic.

    Also, raising the retirement age may just shift people to the disability payrolls. Whether we want somebody to work to 68 or not, some people just aren’t physically able to anymore. Those people won’t be working and paying taxes, they are going to sign up for disability and collect anyway.

    Like or Dislike: Thumb up 3 Thumb down 0

  90. anjin-san says:

    @ Just Me

    A 70 year old lawyer can keep working if he has to

    My dad was an excellent attorney. He found out the hard way that that is not necessarily true.

    Like or Dislike: Thumb up 5 Thumb down 0

  91. JKB says:

    Just saw on the television a commercial that sums up our tax system.

    An entire industry set up to keep you from being ripped off on your taxes.

    Like or Dislike: Thumb up 0 Thumb down 1

  92. anjin-san says:

    @ JKB

    A HR Block commercial and a Life Magazine article that is over 70 years old.

    In case you are wondering why no one takes you seriously, wonder no more.

    It’s interesting how conservatives and liberals have changed places. Conservatives work on feeling now, facts count for little or nothing. They would rather lose and tell themselves how right they are and everyone else is full of it than go through a painful failure analysis process and figure out where they went wrong.

    Kinda like liberals in the 70’s & 80s…

    Like or Dislike: Thumb up 7 Thumb down 0

  93. Mikey says:

    @anjin-san: Dementia made sure my dad couldn’t keep working past 70. He’d go in to the business he’d owned since 1980, and just sit in a chair behind the counter and watch the world go by. A couple years ago, he couldn’t even do that any more. Just before this past Thanksgiving, he went to sleep one night and didn’t wake up.

    He and my mother have been divorced since 1991, but she never remarried, so she gets a big bump in her Social Security payment. Funny how life goes, sometimes.

    Like or Dislike: Thumb up 0 Thumb down 0

  94. john personna says:

    On means testing, remember that it has started with the back door, taxing benefits.

    In a way that is sicker, but it sneaks its way through. Sure, here is your Social Security … now, about that tax …

    Like or Dislike: Thumb up 2 Thumb down 0

  95. Rob in CT says:

    Taxing bennies might be easier/less invasive than means testing, no? My concern with means testing is the hassle it seems like it would entail. The idea strikes me as sound.

    An entire industry set up to keep you from being ripped off on your taxes.

    An entire industry set up to help people avoid their obligations. Ah, America.

    Like or Dislike: Thumb up 2 Thumb down 0

  96. john personna says:

    @Rob in CT:

    I’m surprised(*) that JKB can’t spot the government rent seeking. Our tax system is maintained at a complexity which requires an industry to siphon off processing fees.

    Countries better than us just have a free website everyone uses.

    * – no, not really.

    Like or Dislike: Thumb up 1 Thumb down 0

  97. john personna says:

    (It would be entirely reasonable for us to ask our government to make both a simple tax system, and a web service to support it. If we just think they they can’t handle it … again we are to negative exceptionalism.)

    Like or Dislike: Thumb up 2 Thumb down 0

  98. Mikey says:

    @Rob in CT:

    An entire industry set up to help people avoid their obligations. Ah, America.

    It’s not avoiding one’s obligations if one is not legally obligated to pay it in the first place.

    It is not the government’s money first, it is the citizen’s, and if the citizen chooses to utilize some method–software, accountants, paid preparation assistance–to ensure they only pay in taxes what they are legally required to pay, that is not avoiding obligations, that’s just being wise with money.

    Not to mention the federal tax code is so convoluted, complex, confusing, and contradictory, it’s well-nigh impossible for anyone with even the most basic sources of income to do it right on their own.

    Like or Dislike: Thumb up 0 Thumb down 0

  99. Mikey says:

    @john personna:

    Countries better than us just have a free website everyone uses.

    http://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Free

    There you go. Now we’re better than us, too.

    Like or Dislike: Thumb up 0 Thumb down 0

  100. Rob in CT says:

    @Mikey:

    I was exaggerating, it’s true.

    And actually, I was thinking of those ads from lawyers about helping you deal with your overdue tax bills.

    Like or Dislike: Thumb up 0 Thumb down 0

  101. Mikey says:

    @Rob in CT:

    I was thinking of those ads from lawyers about helping you deal with your overdue tax bills.

    I’d forgotten about those…it is interesting that the government will settle for a lower amount just to get something. I guess at that point they realize they can’t squeeze blood from a turnip.

    Like or Dislike: Thumb up 1 Thumb down 0

  102. john personna says:

    @Mikey:

    Actually, do you see the way they did that?

    It is only for people below an income bar, and it redirects to those rent-seeking companies, who can have their own criteria for acceptance to the free program, who can seek to leverage you into a for-pay state system, and who bill the government for you as well.

    It is marginally better than a “you must pay” system, but it is a split-the-money deal with tax preparers.

    Like or Dislike: Thumb up 3 Thumb down 0

  103. Mikey says:

    @john personna:

    Actually, do you see the way they did that?

    Yeah–it says “Everyone is eligible to Free File!” but not really, you’re only eligible if your AGI is at or below the average.

    I really don’t think paying for assistance or software is that big a deal. I mean, after all, you don’t have to pay anything. You can just fill out a paper return and mail it in. But the complexity of the tax code means if you do it that way you may pay more in taxes than your actual legal obligation.

    As far as rent-seeking goes, I’d wager H & R Block and TurboTax are pretty far down the list…

    Like or Dislike: Thumb up 0 Thumb down 0

  104. Rob in CT says:

    @Mikey:

    I see them a lot on NYY broadcasts on YES. Lots of high-income NJ, NY and CT households in that service market and apparently that’s the targe audience for “let us help you settle with the IRS for pennies on the dollar.”

    Like or Dislike: Thumb up 0 Thumb down 0

  105. john personna says:

    I believe the free service does not support all tax forms.

    Like or Dislike: Thumb up 1 Thumb down 0

  106. Rob in CT says:

    By the way, speaking of surprise tax increases… we have an employee. The first day she came to work after the deal (Wednesday of last week), I told her about the 2% payroll tax increase (expiration of cut, really, but whatever). She had no idea. Total surprise.

    Stealth! No, just someone who doesn’t pay as much attention to this stuff as we do.

    Like or Dislike: Thumb up 1 Thumb down 0

  107. Mikey says:

    @Rob in CT: The administration did far more awareness-raising of the institution of the payroll tax holiday than of its end…

    I was hoping they would expire it over a couple years rather than all at once. Maybe they thought the political impact of doing it all at once would be less than having to deal with a tax increase a year for two or three years. Get all the pain out of the way at once, like ripping off a Band-Aid.

    Like or Dislike: Thumb up 0 Thumb down 0

  108. Rafer Janders says:

    @Mikey:

    It is not the government’s money first, it is the citizen’s,

    Actually, no, it is the government’s money first, because they, you know, print it and issue it to the banks to put into circulation and back it with the full faith and credit of the United States. Without the government, all you’ve got is some green pieces of paper with pictures on them.

    Like or Dislike: Thumb up 0 Thumb down 0

  109. Rob in CT says:

    @Mikey:

    Well, a tax cut is always easier to trumpet than a tax increase.

    I’m generally in favor of phase-outs when possible. 1% this year, 1% next year… something like that.

    Though in my perfect world we’d scrap FICA altogether and replace the revenue with something less regressive than a flat tax on wage income. ;)

    Like or Dislike: Thumb up 1 Thumb down 0

  110. Mikey says:

    @Rafer Janders: Did the government create the value represented by the money? No, the citizen did. Therefore it belongs to him first.

    Should the citizen then pay an appropriate amount of tax for the services of protection and guarantees of honoring currency the government provides (among many others)? Yes, of course he should. But that obligation in no way eliminates the fact the citizen, not the government, created the value represented by the citizen’s wage.

    It belongs to him first. Period.

    Like or Dislike: Thumb up 2 Thumb down 2

  111. Rafer Janders says:

    @Mikey:

    Did the government create the value represented by the money?

    Well, yes. The value of the money is the full faith and credit of the United States government.

    No, the citizen did. Therefore it belongs to him first.

    No, the individual citizen was only able to create the value using the framework provided by the government — that is, the modern industrial commerce society we have cooperatively set up. We are able to have business in the first place because we have a military and police to protect us, schools to educate us, regulated banks, a court system to mediate disputes, multiple regulatory agencies to ensure that consumers and investors are protected, roads to ship goods on, ports to land goods at, etc. etc. etc.

    Without government, the only value you’ll be able to create is that which you can protect with your own fists — which ain’t much. Seriously, go to Somalia and try to create value. I think you’ll have a rude shock.

    Besides, I find this whole government/citizen dichotomy you cling to somewhat bizarre, as the government is merely the administrative apparatus of the citizens. In a representative democracy, we ARE the government. Remember by the people, of the people….?

    Like or Dislike: Thumb up 3 Thumb down 1

  112. Mikey says:

    @Rafer Janders:

    We pay taxes to fund all that stuff. That’s our obligation to the government in exchange for what it provides. I’m certainly not someone who will argue against the necessity of doing so, or its appropriateness. I’m just saying the value represented by the money we’re paid for our work belongs to us first, as its creators, and we should owe government no more than what it takes to provide the services we enjoy.

    Besides, I find this whole government/citizen dichotomy you cling to somewhat bizarre, as the government is merely the administrative apparatus of the citizens. In a representative democracy, we ARE the government. Remember by the people, of the people….?

    Of course, but it’s not “Tutto nello Stato.” Our government is a representative one, but the administrative apparatus is also an entity distinct unto itself, and sometimes works against the best interests of the citizenry (see: Drugs, War On).

    Like or Dislike: Thumb up 0 Thumb down 0