Posted on 06/01/2008 9:39:13 AM PDT by shove_it
Tax Foundation: Obama’s Plan to Abolish the Social Security Wage Ceiling: A State-by-State Breakdown, by Gerald Prante:
It is commonly observed that the policy ideas of Barack Obama and Hillary Clinton are almost identical, but Obama does have one major tax proposal that Clinton does not specifically endorse: eliminating the wage ceiling for Social Security taxes. ...
[T]here has always been a ceiling on the tax, an amount of annual wages above which the tax does not apply. Right now, the wage ceiling is quite high, $102,000 for a single person ... In 2008, the maximum Social Security tax for a single person is 12.4% of the first $102,000 in wages, or $12,648.
Reporters have asked Obama how he can propose to abolish the wage ceiling and also keep his promise not to raise taxes on anyone who makes less than $200,000 or $250,000 (Obama has cited both figures). His response is that he might campaign for a "donut hole" in the Social Security tax. That is, wages up to the ceiling would be taxed as usual, followed by a non-taxable amount up to $200,000 or $250,000, and then all wages above that would be taxed.
In the table below we give a state-by-state breakdown of those three scenarios: (1) wage ceiling is eliminated, (2) wage ceiling eliminated but with a donut hole up to $200,000, and (3) wage ceiling eliminated but with a donut hole up to $250,000.
Here are the ten states that would be hardest hit by Obama's proposal (along with the percentage of the state's workers who would see their taxes increase under the Obama plan):
New Jersey (10.7%) Maryland (9.6%) Connecticut (9.5%) Virginia (9.0%) Massachusetts (8.9%) California (8.8%) New York (8.0%) Illinois (7.02%) Colorado (6.96%) New Hampshire (6.8%) Here are the ten states that would be least affected by Obama's proposal (along with the percentage of the state's workers who would see their taxes increase under the Obama plan):
Montana (2.4%) North Dakota (2.6%) South Dakota (2.9%) West Virginia (3.38%) Nebraska (3.41%) Idaho (3.44%) Wyoming (3.45%) Iowa (3.5%) Kentucky (3.6%) Mississippi (3.7%)
Step 1. Abolish the Congressional retirement plan and place them on Social Security like the rest of the United States population.
Step 2. Get out of the way as Congress tries to change Step 1 back to the way it was.
Oh, wait. The payments won't change? I won't be getting a bigger check? So doesn't such a proposal mean Social Security becomes a welfare system, rather than an old-age insurance system?
Obama’s tax doesn’t really tax the wealthy, it is more of a tax to prevent those who want to become wealthy. Having to make $3 million to keep $1 million is more like a millionaire prevention program than a tax on those who already millionaires.
How many of you out there have ever taken the time to research SS and how those plans work for all federal workers from the President on down?
BINGO....BEST COMMENT OF THE DAY!!
Why can't high tax-loving democrats (higher taxes on income, social security, dividends, capital gains and interest)understand that SIMPLE FACT?
Obama's tax program is just what you stated,,,
"A MILLIONAIRE PREVENTION PROGRAM"!
The big part of this Social Security as presently designed is that is is a totally regressive tax, an income tax that is applied to Dollar One of earned wages, and progresses right up to the maximum, where it abruptly breaks off. And even then, the full impact of the amount withheld from wages is covered with a legal fiction, leaving the wage earner with the impression he pays “only” 6.2%, but in reality the wage earner is carrying all the water, for 12.4% of the pool of money the employer sets aside for employee wage costs.
Test this hypothesis on the self-employed, where the entire weight of the Social Security coollection falls on the individual, there being no “other party” employer to “absorb” the payroll tax.
What makes the Social Security cut-off even MORE regressive, is that higher wage rates, beyond $102K, are no longer subject the additional Social Security levies (though there is no similar limitation on Medicare, which proceeds from Dollar One to Last Dollar).
Now, the theory is, the more you pay into Social Security, at least in the last five years of your earning history, the more Social Security you collect. WRONG.
There is a maximum allowable Social Security benefit, and if other retirement income is available, the Social Security benefits become taxable on some weird sliding scale that was devised by a chimpanzee on LSD. Also, if you were in certain retirement plans, the base upon which your Social Security benefits are computed are reduced by another weird sliding scale, apparently to prevent “double-dipping” on retirement income. Only you don’t learn these things until AFTER you retire, with the assurances that everything was there, only to find out it they are NOT.
Mind you, I’m not complaining for myself, as we live rather comfortably in retirement. But I am griping at the existing rules, which seem to be written more for the benefit of attorneys, and a reason to DENY payment of benefits, than as some “fair and just” distribution of honestly earned and deserved reward.
This is one applecart I would desperately love to kick over.
Everyone wants a flat tax until it comes to social security. I pay on every cent I make. So should everyone else. Fair is fair. Personally I would prefer scrapping it all and going with the Fair Tax.
No, most of those are actually blue states.
But individually I’m willing to bet the biggest losers are largely Republicans.
True indeed. I'm graduating from law school in a couple years, and Obama's plan (just the SS part, the others parts are just as harmful) will probably cost me about $12,000/year.
Am I one of the rich people Obama feels can afford one less BMW or whatever? I'll be lucky if my net worth at graduation is above negative $100,000. Can I ever get rich on a lawyer's salary? Possibly, but it will be far, far harder if Obama has his way.
It's a system where inflation screws everyone who paid into it. During a contributor's working lifetime the starting pay when he retires will be 20X what he started with. So today's people starting at $50,000 can expect that when they retire the starting pay will be $1,000,000. Obviously retirees will quickly get back what they contributed for whatever that will be worth.
This figure overlooks the 2.9% Medicare tax which already has no limit. That raises the $12,648 maximum figure to $15,606 maximum annually.
Some may find this fact about increases in Social Security taxes disconcerting but nonetheless this is a fact. The increase between the maximum Social Security tax paid in 1950 to the maximum Social Security tax paid in 2008 is well over 25,000%. No, that is not a misprint or a typo; actually 25,910% is more accurate.
Have you ever heard politicians say, “Social Security is not broken”? What they must mean is if you fix something that is broken, it is no longer broken because they have fixed it every year since 1950. Some years they fixed it by increasing the rate; some years they fixed it by increasing the limit, and some year’s both.
Let’s play a little game with that 25,000% increase.
A $0.52 pound of bacon in 1950 would be over $130.00 in 2008 if its price had increased 25,000%.
A $0.20 gallon of gasoline in 1950 in 1950 would be over $50.00 in 2008 if its price had increased 25,000%.
A $0.24 tube of toothpaste in 1950 would cost over $87.00 in 2008 if its price had increased 25,000%.
A $0.10 Lipton Noodle Soup in 1950 would be over $25.00 in 2008 if its price had increased 25,000%.
A $26.00 house rental in 1950 would be over $6,500.00 in 2008 if its price had increased 25,000%.
A $0.01 Post Card in 1950 would be over $2.50 in 2008 if its price had increased 25,000%.
A $1,000 new car in 1950 would be over $250,000 in 2008 if its price had increased 25,000%.
A $2.00 hourly wage in 1950 would be over $500.00 per hour in 2008 if it had increased 25,000%.
You see this can go on and on but let me ask; how much are you paid per hour in 2008?
These two bring to mind a H. L. Mencken observation.
“As democracy is perfected, the office of president represents, more and more closely, the inner soul of the people. On some great and glorious day the plain folks of the land will reach their heart’s desire at last and the White House will be adorned by a downright moron.”
Does Mr. Obama’s plan include an explanation of how to compensate taxpayers who paid more in? This is how Social Security works, the more the individual paid in the higher that individual recipient’s Social Security check will be.
I have a mental block on that ~ I can’t help calling Blue friendly. We need to take that color back.
Back in early 2005, when Bush was pushing for private accounts, I did the math. Granted, I was just looking at a static wage, not wage growth over time. But considering static wages, if you made over $16,600/year ($8.30/hr), you were losing money on Social Security.
I used the 30-year treasury note interest rate, not a stock market rate of return. Given this is supposedly what excess Social Security moneys are "invested" in (a loan to the government), it is a valid comparison.
Again, using static wages, I determined the average salary at the time ($31,000/yr) would lose $316/month on their Social Security payments compared to the return they would get if invested in Treasuries, then paid out as an annuity.
Social Security is a fraud. Ronald Reagan railed against it in the 1960s, arguing private annuities would provide more return for less investment. It has only gotten worse of the last 40 years.
If this were a private retirement company, its leaders would be hauled in front of Congress to explain, or perhaps be in orange jumpsuits and leg irons.
I would gladly let the Feds keep the contributions from the first half of my working life and give up not claiming a nickel, if they would let me keep the contributions from the second half of my working life, as I know I would end up with a greater rate of return despite 20 years of lost compounded interest.
You make good points. You do raise the question of Treasuries. Couldn’t the government invest in those same Treasuries in your name?
Even so, inflation is a retirement killer which should not be ignored. Whatever your money is ‘invested’ in, over time it comes back at some 5 cents on the dollar. An inflation protected security would eliminate the need for much of the ‘welfare’ composition of the current system. But then again, inflation protection would negate the desire to inflate.
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