Posted on 09/02/2005 11:01:09 AM PDT by pigdog
I know it's not a real pension, but it looks like it, and that's largely how folks understand it.Because people don't understand how SS really works is not argument against a NST. That is an argument for teaching basic economics.
However, one of the effects of the NRST that is negative in my mind is that Social Security and Medicare will then come out of the general consumption tax, rather than out of the specific payroll taxesNow, payroll taxes and income taxes are not, in reality, in seperate "accounts". It is all lumped together to pay both the cost of SS and the rest of government. Same thing happens under a NST except "folks" would know what they are really paying(much easier to understand)
Faster privatization means more pain in the relatively short-term, but it also means getting to a better place faster. Slower privatization means that we spread the pain over a longer stretch, and it takes longer to get to the final destinationI totally agree with this and your other arguments regarding privatization. Once everyone has control of their forced retirement funds, the SS portion of a NST would disappear. The faster the better..
pigdog has been name-calling every person who does not worship the sales tax for over 6 years. He will not go away.
pigdog: Looey, of course, will continue to pump up the "good old status quo" by trying to attack the FairTax with any lies and misinformation he can dream up. He does this at least partly to maintain his 100% wrong record of posting, no doubt
Bigun: Loonie is lost in a maze of his on making and likely will NEVER find his way out!
You could easily cut and paste those responses from 2000 and put them in this thread. Exact same crap. Until fairtaxers clean up their act, they will always be a joke on FreeRepublic.
The problem with your proposed solution is that it completely ignores the enormous near to mid-term 800 pound Social Security gorilla, which is demographic in nature. As the baby boomers retire over the next decade or so, the number of retirees drawing money from the system relative to the number of workers paying into the system is going to shift in such a way as to threaten the solvency of the whole system without either
(1) substantial benefit cuts, or
(2) enormous payroll tax increases
I have heard no privatization proposal which would enable older Americans to have enough set aside in private accounts by the time they reach retirement age to materially alleviate the government's obligations toward funding their retirement benefits. Those benefits will have to be paid from payroll taxes withheld from younger workers and supplemented by general revenue funds (or more national debt). As previously mentioned, to the extent that privatization diverts funds into private accounts which would otherwise be available to fund these benefits, it exacerbates the near term problem, although it also means that younger workers will have their own private accounts to draw down on for their retirement and won't be dependent on government revenues for their retirement security. I think everyone agrees that is where we would like to get to. The huge challenge, however, is how do we get there from here, given the magnitude of the financial hurdle. That is the gigantic issue which you completely ignored, which is typical of most who say that SS reform (meaning privatization) is extremely important.
To put that financial hurdle into perspective, Dr Lawrence Kotlicoff of Boston University has estimated that the 75 year shortfall in SS and Medicare is a little over 50 trillion $$$. That's TRILLION - with a T! If we were to nationalize the net worth of every household in America - if the federal government were to seize every privately held financial asset in the nation - that would only be a little over 40 trillion $$, meaning we could only cover about 80%.
Obviously, there are some tough decisions which have to be made. If we convert to the FairTax and double the size of the US economy over the next 15 years, then we double the base from which to draw these social safety net revenues. There is no way that happens with a payroll based system. Will that be enough to completely resolve the demographic time-bomb? Probably not, but it is certainly a major step in the right direction and is most assuredly more politically palatable than the alternatives.
FairTaxers get understandably frustrated by the naysayers who say "we don't like your approach to the problem". When we then respond with "ok, what is your approach?", and it becomes obvious that it the naysayers don't have one. Left to their own devices, they would ignore the big issue completely. During my business career, I saw an approach advocated on many occasions which essentially boiled down to "Let's ignore this problem and hope that it goes away". I have yet to see that approach produce even marginally acceptable results - not a single time.
I can't help but draw the parallel to the aftermath of Katrina. There is the usual partisan finger-pointing, of course. However, it is very hard to explain to the American public why, with warnings going back for more than a decade that a class 4 or 5 storm hitting New Orleans directly would produce catastrophic results, that we were as ill prepared and slow to respond as we were.
Perhaps it will take a major financial crisis contributed to in large measure by our tax system for Americans to get serious about our antiquated and horribly inefficient tax system. There are no perfect solutions and no painless short-cuts to getting on a more sustainable and sound longer term path.
"But they are unwilling to MAKE SURE that Income Taxes are DEAD before instituting a NRST. So, they are trusting the very politicians they say we can't trust."
That straw man keeps getting thrown up there, so I have to bat it down yet again. FairTaxers do NOT trust individual politicans. We trust our form of government. We believe that politicians' primary motivation is to stay in power, which means they are in a perpetual state of vote counting. When fundamental tax reform becomes important enough to the electorate (and we are definitely getting there), the politicians will get the message. Nothing will open the eyes of the electorate as to just how bad our tax system is like getting rid of it and watching the economy respond and our freedoms restored. When we say that GDP growth in the first year will exceed 10%, that is just an abstract number to most people. However, any American living through that period will understand immediately what that means.
Here in GA, every Republican house member is a co-sponsor of the FairTax bill. We also have a reasonable chance with 3 of the 6 Democrats (the offsetting pressure from party leadership notwithstanding), if their conversations with me are any indication. Georgia also has the highest level of public recognition of, and support for, the FairTax among the general voting population. Are those two facts related or just coincidental? I would suggest that there is a definite cause and effect there.
The political strategy of replacing the income tax permanently with a sales tax has no more to do with trusting politicians to do the right thing than does the understanding that cost reductions will be passed along to consumers. This is NOT based on the generosity and benevolence of business decision-makers. Businesses exist to make a profit; indeed the economists say profit maximization is the goal. As a staunch capitalist myself, I don't see anything wrong with that. Sitetest may consider that "evil", but I don't.
Our economic system aligns the interests of business leaders with that of society in general, at least better than the alternatives do. Our political system aligns the interests of individual politicans with that of those they represent, at least better than alternative systems.
There is no such thing as a perfect tax, economic or political system. As a FairTax supporter, I believe that our political and economic systems are the best in the world, imperfect though they may be. Unfortunately, the same cannot be said for our tax system.
“With all the imperfections of our present government, it is without comparison the best existing or that ever did exist.”
Thomas Jefferson
Dear phil_will1,
"If we convert to the FairTax and double the size of the US economy over the next 15 years, then we double the base from which to draw these social safety net revenues."
Well, first, the economy may very well double anyway in the next 15 years, in nominal terms. That's only a nominal 5% growth rate.
Second, even somewhat less robust growth will result in around 60% - 70% growth, or thereabouts, in the next 15 years.
Third, I don't really believe the NRST will have a net positive effect inside of 15 years, not while collecting 20% of GDP, give or take. I expect that in the first few years, we'd have a moderate recession, followed by a couple of years of slow growth, and then finally, movement toward longer-term higher growth rate. Maybe.
Japan has never really recovered from shifting to about 30% of government revenue collected from consumption taxes.
So, I don't see any help, there.
As well, the NRST, as currently envisaged, provides no possible mechanism to eventually privatize the system.
But you're right - the problem that will start late in the next decade is ugly.
I already said - no way to avoid the trainwreck.
My best guess is that we can minimize the damage as follows:
1. Increase the retirement age a bit more;
2. Tie benefits calculations to inflation rather than wage gains (this really screws middle and upper middle class earners, as payroll taxes obviously are tied to wage gains, but, hey, I told you it would be ugly);
3. Significantly reduce benefits to folks currently under 50 years of age, phasing out completely the current benefit system for folks who are just entering the workforce;
4. Increase the ceiling on the payroll tax from the current $90K to, say, $120K (maybe more)(this one really gores my ox, and it is quite painful for me to recommend it - but what can I tell ya, I told you it would be ugly);
5. Launch privatized accounts taking whatever we can get now, and moving to the entire 12.4% in a short time period. Set aside approximately 1% of the 12.4% for group life insurance, to replace the survivor benefit, and set aside approximatley 0.5% of the current 12.4% for group disability insurance, to replace the disability benefit. These percentages are based on my actual small-group plans for a workforce with an average age of 40. That leaves nearly 11% for the actual retirement accounts.
I'm not tied to these five suggestions, except #5. If folks have better ideas, I'm willing to listen.
They will be painful, and they will also put Congress in a very bad situation, in that Congress will be forced to cut spending at least moderately.
But that crisis can have a good result.
By the way, without indexing benefit calculations to overall general inflation, instead of to overall wage gains in the economy, even if the economy did double in 15 years, it wouldn't help. It would just ratchet up the base on which benefits are calculated. Without #2, the NRST doesn't do a wit of good.
So, as presently conceived, the NRST does no good for Social Security at all. It just better hides the problem.
"FairTaxers get understandably frustrated by the naysayers who say 'we don't like your approach to the problem'. When we then respond with 'ok, what is your approach?', and it becomes obvious that it the naysayers don't have one."
Well, I don't have one that's legislation before Congress, that's true. But if you want to start a thread where we could discuss plans to privatize Social Security, I certainly have some serious thoughts about that, and would be happy to participate, given a couple of ground rules.
I think that I already gave a few of the broad parameters of the solution that I'd propose.
To me, that's the first thing to work on.
The second one is Medicare. That's possibly even uglier, and I personally don't have much by way of suggestions on how to fix that one.
Of course, when I mention these things, I'm told that these don't represent solutions, or that it's not real, or there's no legislation before Congress, or it doesn't fix the INCOME tax system, etc.
Some of these criticisms are true but irrelevant, others are just not true. There ARE ways to fix Social Security, and it IS a keystone to the overall taxation and spending solution.
There is no legislation before Congress, but so what? That doesn't make it any less important or appropriate.
It doesn't fix the income tax, that's true, but as I've posted countless times, at current rates of federal control of GDP, the cure might be worse than the disease.
To me, this isn't the right problem to address right now. It doesn't matter whether I have a solution or not. I actually have discussed some of the things I think need to be solved, and given my thoughts on how to solve them. So it's false to say that I haven't.
However, even if I haven't, just because I don't have a better idea than driving off cliff to our collective death doesn't mean that I'm obligated to go along with the plan to drive off the cliff. That would be a non sequitur, a type of logical fallacy. One thing doesn't naturally follow or require the other.
sitetest
You could easily cut and paste those responses from 2000 and put them in this thread. Exact same crap. Until fairtaxers clean up their act, they will always be a joke on FreeRepublic.That doesn't seem to stop you you from posting here. Saying that "they will always be a joke" sounds like more of the "exact same crap".
No, the argument against the NRST isn't that folks misunderstand how Social Security works, but that the NRST will HIDE the costs of Social Security incurred by individuals even more than the current payroll tax method..How will it hide the cost? Is the percentage of a NST going to SS a fixed amount? If so, there is no way to hide it. If not, you have a point.
And this is all partially enabled because folks see the 7.65% coming out of their checks, and a significant number (a large minority? a small majority?) realize that the another 7.65% that would be available to them comes out of the employer side.My choices are A. a large minority and B. a small majority? I pick C. a small minority. Half of the cost is currently hidden to wage earners. Most wage earners and the people who pay those wages don't understand that.
Reform SS first and then implement a NST. Fine with me.
I imagine your posting days here are numbered. Your types don't last long.
Wonderfully observant of you ... are you the one who controls who gets to post and who doesn't?
I've often wondered ...
Thank you, it was observant. And yes, I control all things. No more wondering.
FairTaxers get understandably frustrated by the naysayers who say "we don't like your approach to the problem". When we then respond with "ok, what is your approach?", and it becomes obvious that it the naysayers don't have one. Left to their own devices, they would ignore the big issue completely.I never like this argument. I argue the pros of a NST. I want people to point out the cons that I might have missed, and if I disagree, I'll rebut their argument. What they think is the best way to tax people belongs on another thread. I'll argue that on that thread and point out the cons to their pros. However, I do get frustrated when I hear arguments like "it'll never work" or "it'll never pass".
Dear woodbeez,
Right now, when my employees receive their paystubs, they have an amount removed from their checks marked, "FICA," and an amount marked, "Medicare." They know that I pay two identical amounts.
Once a year, they receive W-2s, where it's stated quite clearly precisely how much they paid for these two items for the year, and they know I paid an identical amount.
Under the NRST, they will receive a receipt for each taxable purchase, and there will be a gross sales tax amount. There will be nothing to note how much of that went to Social Security.
That further hides it more than it's already hidden. No one is ever going to give them a piece of paper each year stating, "Here is how much you paid, on your side, for Social Security and Medicare."
I doubt that most folks will add up the amounts, each year, of what they pay in NRST, from individual receipts, and then figure out what proportion of that went for Social Security. It will be an abstract percentage of an otherwise unknown number for folks who are reasonably well-informed, and it won't even be that for the rest of workers.
"My choices are A. a large minority and B. a small majority? I pick C. a small minority. Half of the cost is currently hidden to wage earners. Most wage earners and the people who pay those wages don't understand that."
Maybe. But I don't agree. I know that I inform each one of my workers, when I hire them, how payroll taxes work. However, even if I did, the NRST still hides the Social Security and Medicare contributions even more than the current payroll tax system.
"Reform SS first and then implement a NST. Fine with me."
If, by reform, you mean privatization, to remove this money from the government's coffers, then I can go along with that, too.
However, in my own view, the privatized Social Security would still have to be based on each individual's income, so some mechanism would have to remain that still withheld a worker's contributions to his own personal retirement account. And of course, government reporting of this would still be needed.
sitetest
Once a year, they receive W-2s, where it's stated quite clearly precisely how much they paid for these two items for the year, and they know I paid an identical amount.They may know you paid an identical amount but do they understand the money you paid is really their money?
Under the NRST, they will receive a receipt for each taxable purchase, and there will be a gross sales tax amount. There will be nothing to note how much of that went to Social Security.You didn't answer my question "Is the percentage of a NST going to SS a fixed amount?". If it is, everyone will know that X% of the retail tax goes to SS.
I doubt that most folks will add up the amounts, each year, of what they pay in NRST, from individual receipts, and then figure out what proportion of that went for Social Security. It will be an abstract percentage of an otherwise unknown number for folks who are reasonably well-informed, and it won't even be that for the rest of workersMost people don't do that now. They look at their net wages and the amount of the "refund" they will get. Their net wages pays the bills. What they paid into SS or what you paid into SS is abstract concept to most people.
I know that I inform each one of my workers, when I hire them, how payroll taxes workEmployees are concerned with take home pay. It's good you explain that to them(I never have had an employer explain it to me...you are part of another small minority).
However, in my own view, the privatized Social Security would still have to be based on each individual's income, so some mechanism would have to remain that still withheld a worker's contributions to his own personal retirement account. And of course, government reporting of this would still be needed.Totally agree. The SS portion of a NST would be removed. Deduct the total percentage from wages. A NST would be reduced by that amount
No it is not fixed, it is variable. When SS needs more money, the rate goes up automatically. The fair tax has automatic tax increases built in to cover whatever SS needs. Quite a reform, and I sure people who paid in their whole lives will be happy to know they are still paying these built in SS taxes after they retire.
Dear woodbeez,
"'Once a year, they receive W-2s, where it's stated quite clearly precisely how much they paid for these two items for the year, and they know I paid an identical amount.'
"They may know you paid an identical amount but do they understand the money you paid is really their money?"
Well, I tell 'em it is. Whether they understand it or not, they certainly can see what they're paying on their side of payroll taxes.
"'Under the NRST, they will receive a receipt for each taxable purchase, and there will be a gross sales tax amount. There will be nothing to note how much of that went to Social Security.'
"You didn't answer my question 'Is the percentage of a NST going to SS a fixed amount?'. If it is, everyone will know that X% of the retail tax goes to SS."
Whether it is or not, it's not relevant. If many workers will discount what they see in black and white on their W-2, for FICA and Medicare, even more workers than that won't ever even think about the abstraction of some percentage of the NRST going to Social Security, which will be even further removed from thoughts of just how much it all comes to over the course of a year.
It is clearly more hidden with the NRST.
"Employees are concerned with take home pay."
Yes, and I've often have had employees bark about taxes, including their payroll taxes. It is much more tangible, even at only half the amount, then telling folks that some percentage of the NRST will be dedicated to Social Security.
"Totally agree. The SS portion of a NST would be removed. Deduct the total percentage from wages. A NST would be reduced by that amount."
I see it precisely that way, as well.
One of the benefits, if we could get to a privatized Social Security system, would be that folks would only need to pay for their retirement once. Currently, folks see 12.4% of wages, between both sides, go to retirement, disability, and survivor benefits, but it's just woefully insufficient. So folks have IRAs, SEPs, Keoghs, 401(K)s, etc., to make up for that deficiency.
But that's nuts!
Of that 12.4%, easily 11% per year could go directly toward retirement. Any worker who saves 11% per year, throughout their career, for 40 or more years, will retire very, very comfortably. Folks won't need, and most folks won't choose to use that second retirement vehicle.
For many workers, that will represent the ability to use more money for current needs.
sitetest
Apparently, the fair tax ties the SS portion of the rate to reported wages. Currently, wages are under reported because people don't want to pay the SS tax. I take only a small salary out of my business for that very reason. Once the fair tax is adopted, people will report higher wages which will cause the fair tax rate to go up automatically. This will also lead to having the SS being on the hook for paying more out in benefits.
"They may know you paid an identical amount but do they understand the money you paid is really their money?"Understanding that they only pay half of employer/employee split is still misleading and hides the true cost. Do you also tell your employees, who can see what they pay into their SS account on their W-2's, that they are paying that money into an imaginary account. That's the abstraction. Their money has already been spent. It hasn't been invested on their behalf. Where is the transparency there? A NST exposes SS as a welfare program, for rich and poor alike.Well, I tell 'em it is(. Whether they understand it or not, they certainly can see what they're paying on their side of payroll taxes.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.