Watch out when workers discover they're chumps (editorial)

The Seattle Times ^ | March 11, 2004 | Froma Harrop

[MikeJ75]

Someday, the working lugs of America are going to figure out who is paying for all these tax cuts. Fed Chairman Alan Greenspan recently offered a hint when he urged Congress to scale back Social Security benefits.

For two decades, politicians have been shifting the tax burden from high-income taxpayers to the sweating masses. Lunch-pail Americans represent easy pickings, since their taxes get automatically plucked out of weekly paychecks. And the tax for Social Security has proven to be an especially fat goose.

Congress has developed a bad habit: Whenever red ink threatens the federal budget, Social Security is the first place it looks for money. Raising the retirement age for benefits and slowing cost-of-living increases might make sense at some point. But everyone knows this infuriating discussion is about preserving tax breaks for the rich.

Social Security is the working stiff's tax. Three out of four households now pay more in Social Security taxes than in income tax. The Social Security tax takes 6.2 cents out of every dollar of salary, up to a maximum $87,000. As a result, the tycoon making $10 million pays the same amount to Social Security as the shopkeeper earning $87,000.

For a full account of the working chump's growing role as America's star taxpayer, consult a new book titled, "Perfectly Legal: The covert campaign to rig our tax system to benefit the super rich — and cheat everyone else." Readers should take their blood-pressure pills before letting author David Cay Johnston, a New York Times reporter, show them the various cons.

For example, politicians weep violently over the alleged unfairness of taxing stock dividends. That's double taxation, they exclaim. But, as Johnston points out, Social Security taxes apply to wages that have already been subject to the personal income tax. Nobody cries over that.

And here is the really big rip-off: Social Security is supposed to be a pay-as-you-go program. That is, today's workers pay for today's retirees. But from 1984 to 2002, workers paid $1.7 trillion more than was required to meet current needs. That $1.7 trillion surplus disappeared into government coffers, thus taking pressure off the income tax.

Why have workers been overpaying for Social Security? Look no farther than Ronald Reagan's tax cuts of 20 years ago. The loss of tax revenues helped double the 1982 federal budget deficit in one year. Alarmed by the surging tide of federal debt, the Reagan administration scouted around for new sources of income.

At the time, Social Security was facing a modest deficit that could have been fixed with minor adjustments. But the Reaganites, aided by the dumb Democrats then running Congress, declared a crisis and rang the alarms. They pushed through big increases in Social Security taxes and raised the future retirement age. They said that collecting more Social Security taxes than currently needed would "build up a surplus" for the baby boomers' retirement.

The late Sen. Daniel Patrick Moynihan, the not-at-all-dumb New York Democrat, saw the trick for what it was. He called the Social Security tax increase "thievery."

The federal government goes through the motions of issuing IOUs to cover the overpayments. Economists have called those securities "worthless pieces of paper." And three years ago, then-Treasury Secretary Paul O'Neill dismissed them as "someone else's promise."

During the last presidential campaign, Democrat Al Gore supported the idea of a Social Security "lockbox": All Social Security tax money not going to current retirees would be used to pay down the national debt. That would leave the nation in better financial shape to pay benefits to the baby boomers.

Republican candidate George W. Bush said: Me too. "In my economic plan," he pledged, "more than $2 trillion of the federal surplus is locked away for Social Security."

The surplus is, of course, gone, and Bush's tax cuts are helping to pile up more debt, not reduce it. And while the president swings the tax-cutting saber with abandon, the blade never comes anywhere near the Social Security tax.

So we now have Greenspan saying that the nation can't afford the Social Security benefits for which workers have paid extra taxes since 1983. Someday, the lugs will "get it." And when that light finally goes on, they won't be amused.

[MikeJ75]

I added the bold to that one paragraph about Social Security. Is that correct? Is Social Security double taxation like the double tax on corporate dividends?

If I own in a publicly traded corporation, then the corporation pays tax on its income. When that corporation pays a dividend with the money it has left after paying its income taxes, then I pay an income tax on receipt of that dividend. So that's double taxation. The amount of the dividend that I receive is, of course, less than it otherwise would be if the corporation did not have to pay its own income taxes.

If I get a salary, my employer withholds income taxes from that salary. My employer also withholds Social Security taxes, but my employer does not reduce the amount on which Social Security taxes are withheld to reflect that a portion of my salary has already gone to pay income taxes. In this regard, the Social Security tax seems like a more punitive double tax than the double tax that applies to corporate dividends.

On the other hand, if I take my money from the dividend and put it in the bank, I have to pay tax on the interest that it earns. But when I get my Social Security payments (many, many years from now), the full amount, event the part in excess of what I contributed, may be exempt from tax. Some people who have enough other income have to pay tax on a portion of their Social Security checks, but for most people it is completely exempt from tax.

So what do you think? Is it valid to say that Social Security imposes a double tax?

[Wonder Warthog]

"I added the bold to that one paragraph about Social Security. Is that correct? Is Social Security double taxation like the double tax on corporate dividends?"

Actually not. It is true that Social Security is "double taxation". However, what is not true is that taxing dividends is "double taxation". Since everyone pays social security, taxing dividends is, in reality, TRIPLE taxation.

[Bikers4Bush]

It's definately double taxation and something that is illegal.

[prion]

As even the article points out, Congress dips into SS monies whenever it likes. It's just a pretense that there's a pot full of money called Social Security and a different pot full of money that your income tax goes into. It's all just one big ol' ugly tax masquerading as two discrete funds.

[AppyPappy]

It's definately double taxation and something that is illegal.

Interesting. What law is broken?

[Dane]

Someday, the lugs will "get it." And when that light finally goes on, they won't be amused.

This "lug" has known for 25 years that social security is a fraud ponzi scheme that will collapse.

[Tares]

The Social Security tax takes 6.2 cents out of every dollar of salary, up to a maximum $87,000.

The Social Security tax takes twice 6.2 cents, 12.4 cents, out of every dollar of salary, up to a maximum of $87,000.

As a result, the tycoon making $10 million pays the same amount to Social Security as the shopkeeper earning $87,000.

And when they retire, the shopkeeper receives the same amount in his Social Security check as the tycoon. Same pay-in, same pay-out.

[Woahhs]

It's very much an "apples and oranges" situation. The author knows this, but they are counting on you being one of the "lug"s that aren't getting it.

While this is not an exact parallel, it's close enough for you to get the idea:

A plumber calls Hannity's show and says "hey Sean, it's not right that I earn a hundred thousand in a year and pay taxes on it, but the lawyer down the street earns a hundred thou on dividends and pays nuttin'."

The "dodge?"

Our plumbing friend ignores the fact that his lawyer neighbors 100,000 in earnings represents several MILLION in at-risk investments. The lawyer is risking money already earned by investing in others, the plumber is doing nothng but earning.

[adam_az]

Social Security is the working stiff's tax. Three out of four households now pay more in Social Security taxes than in income tax. The Social Security tax takes 6.2 cents out of every dollar of salary, up to a maximum $87,000. As a result, the tycoon making $10 million pays the same amount to Social Security as the shopkeeper earning $87,000.

That's because the maximum you can RECEIVE is the same. What the SOCIALIST author is proposing is WEALTH REDISTRIBUTION!!!!!

Why have workers been overpaying for Social Security? Look no farther than Ronald Reagan's tax cuts of 20 years ago. The loss of tax revenues helped double the 1982 federal budget deficit in one year. Alarmed by the surging tide of federal debt, the Reagan administration scouted around for new sources of income.

LIAR!!!!! Reagan's tax cuts ended up INCREASING federal tax revenue. How? The total amount of economic activity rose, as a result of the reduced "Dead weaight loss" of lower taxes!!! I've studied these statistics in an Economics class. The author is talking out of his a-hole.

The federal government goes through the motions of issuing IOUs to cover the overpayments. Economists have called those securities "worthless pieces of paper." And three years ago, then-Treasury Secretary Paul O'Neill dismissed them as "someone else's promise."

No more worthless than our corrency. Not to mention that the SSA's "IOU's" to seniors are also worthless pieces of paper. Of course, the Author doesn't mention any SPECIFIC economists, so we don't know who or what he's really referring to.

Overall, this article is a POS. If this author said the sky was blue, I'd go outside to see for myself.

[scocha]

The formulation in the first line of the piece tells all: "pay for the tax cut." Let's see: If citizen A is allowed to keep more of the money that he earns due to a change in the income tax rates and citizens A and B are paid a smaller old-age pension due to the increased longevity of all citizens, then surely citizen B is being asked to shell out cold cash for the income tax cut of citizen A. Let's make it fair: citizens A and B can pay for their own retirements with their own money.

[NavyCaptain]

"the tycoon making $10 million pays the same amount to Social Security as the shopkeeper earning $87,000."

And interestingly get really no more in benefits, should he accept them!

[philetus]

"As a result, the tycoon making $10 million pays the same amount to Social Security as the shopkeeper earning $87,000."

Some people think a tycoon should pay more per dollar than folks making less?

[Redbob]

For two decades, politicians have been shifting the tax burden from high-income taxpayers to the sweating masses. "

Whattaloadacrap!

The top 50% of wage-earners pay virtually ALL the income tax, while the top-earning 25 percent of taxpayers earned more than 65 percent of the nation's income and paid more than three out of every four dollars collected by the federal income tax (77%) in 2001.

[Wonder Warthog]

"What the SOCIALIST author is proposing is WEALTH REDISTRIBUTION!!!!!"

Of course it is. The whole idea of "progressive" taxation is straight out of the communist lexicon. The only REALLY fair tax IS the "Fair Tax" (i.e. a flat rate tax that is the same for all taxpayers-whether that tax turns out to be a National Sales Tax, or a "flat" income tax).

It's too bad that when "Social Security" was established that a REAL "trust fund" wasn't established and then INVESTED in various routine financial mechanisms (stocks, real-estate, state and local bonds, etc). This would have established a MASSIVE reserve of capital for investment.

[Bikers4Bush]

Are you or are you not taxed on your gross income and then taxed again when what the government chose to take out is returned to you later in life?

[AppyPappy]

My question was : What law is broken by that?

[hgro]

So what do you think? Is it valid to say that Social Security imposes a double tax?

Only if you die before 65.

[Radioactive]

Sorry...but they never will get it.

As someone once said...the masses are asses.

[familyofman]

"LIAR!!!!! Reagan's tax cuts ended up INCREASING federal tax revenue. How? The total amount of economic activity rose, as a result of the reduced "Dead weaight loss" of lower taxes!!! I've studied these statistics in an Economics class. The author is talking out of his a-hole."

Did the tax revenues increase in the year the tax cuts became effective, or in some later year(s). I think if you look at the receipts you'll find that actual $ receipts declined in the year of tax cuts & only exceeded the amount of receipts in the year before tax cuts about 2 years later. It's also interesting to note that tax receipts usually increase year-over-year due to increases in population, GDP growth, inflation, and other factors not associated with tax rates.

The recent Bush tax cuts have not resulted in increased tax revenues. In fact actual tax revenues are down since they were inacted. The only years that show a decrease in tax revenue year-over-year are those years where there was a tax-cut.

Before you start tossing out the a-hole admonition please have all the facts. And, don't try to fool others who have studied a lot of economic numbers, not only in class - but in real life when your earnings depend on the analysis you present.

[LN2Campy]

True enough, but social security revenues, to the extent they do not go to pay current benefits, are applied to the general fund. Thus, a good chunk of the social security tax is really just a regressive income tax.