Thursday, March 7, 2013

Everything You Need To Know About Social Security

This article provides a lot of information about SS, and a number of viewpoints about how to fund it.  The least favorite solution among pundits and politicians is to eliminate the cap on payroll tax.  The cap is currently around $113,000.  It increases annually at the rate of inflation.  That means that higher income people have lower tax rate than those with incomes below the cap.  If the cap were eliminated SS would be fully funded for the next 75 years.  Its pretty obvious why high income earners, which includes most of the pundits and politicians,  favor other funding solutions.

The federal income tax is a progressive tax.  The tax rate increases with income.  Those with high incomes prefer regressive taxes like the payroll tax.  Ronald Reagan cut the top tax rate from 70% to 28%.  He also raised the payroll tax rate.  Since the tax revenues from the payroll tax have exceeded payments to beneficiaries, the surplus from the payroll tax has helped to pay for cutting the tax rate for those with high incomes.  That is, we have substituted a regressive tax for a progressive tax.  The money is not segregated as it is collected.  The government does not distinguish between the revenue that comes from the payroll tax and the income tax.  Without the increase in the payroll tax Reagan would not have been able make the income tax less progressive.  The budget deficits from the tax cuts would have it politically impossible.

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