The Real Wealth Gap--The 'death tax' for the other 98 percent of us - Social Security

techcentralstation ^ | 02/19/2003 | David Boaz

[SJackson]

A new study from the Federal Reserve says that the wealth gap between rich and poor grew wider as the stock market boomed in the late 1990s.

The most obvious reason is that more than half of all American families now own stocks either directly or indirectly -- but almost half don't. That means that when the stock market rises, the gap between the stock-owning half and the non-investing half rises.

How to close the wealth gap? Bring more Americans into the investor class and let them pass their hard-earned money onto their children.

President Bush's plan to let younger workers invest their Social Security taxes in stocks, bonds, or other private assets would do that. Social Security modernization would not just help all working Americans become investors, it would help end the Social Security death tax.

Pollsters are often mystified by the unpopularity of the estate tax -- lately renamed the "death tax." How, they ask, can so many people object to a tax that falls on only a few rich people? They have a point.

What everyone seems to have missed, though, is that there is a death tax that affects every working American. It's called Social Security.

Every year, every American worker pays 12.4 percent of his income to the Social Security system. Workers may not realize this because the money is taken out of their paychecks in advance. (That's what FICA means on your paycheck.) And half the tax is concealed by pretending that the employer pays it. But economists agree that a tax on wages ultimately comes out of the worker's pocket.

When a worker retires after paying 12.4 percent of wages for years, he gets a monthly Social Security check. The return isn't very good, but at least there's a check (so far). But look what happens when the worker dies: After paying in for all those years, the worker owns nothing. He can't leave anything to his children.

In short, Social Security imposes a 100 percent death tax on every working American. The money he "saved" all those years disappears.

And there's considerable money involved. Take a thirty-something couple earning $54,000 a year. Social Security promises to pay them about $27,000 a year (in today's dollars) when they retire -- if Social Security still has any money. But when they die, that income stops, and there's no estate to leave to their children. (Of course they may have saved other assets, but the Social Security assets would not survive them.)

On the other hand, if they had been putting those Social Security taxes into a retirement fund divided between stocks and bonds, they could expect to have nearly $1 million in their personal retirement account at retirement. That fund would pay them an annual income more than double what Social Security promises, and they would still have $1 million to leave to their children -- or their church or favorite charity -- at their deaths.

If that couple invested solely in stocks, though exposed to greater short-term risk, they could expect to have even more money -- $1.6 million. That's what the Social Security death tax costs a working couple. If they were allowed to put 12.4 percent of their income into real investments, they could accumulate as much as $1 million or more -- and the Social Security death tax takes it all.

Reform that would allow younger workers to put their Social Security taxes into personal retirement accounts would end the Social Security death tax -- the tax that hits every working American -- and dramatically narrow the wealth gap.

David Boaz is executive vice president of the Cato Institute and editor of "Toward Liberty: The Idea That Is Changing the World."

This article first appeared FoxNews. com.

[SJackson]

the whole thing is moot to me, anyway. I only got in about 20 years of work, before becoming permanently and totally disabled by a spinal condition.(which went misdiagnosed for 18 years, as i suffered with incredible pain) but if privatization means that what I get will have to be reduced to pay for it, i'm against it. I get SSD, not SSDI, so my amount is based on what I paid into the system.

I think your concern is caused more by the fearmongering done about privatization plans than the plans themselves.

First, the status quo, there WILL be a reduction in benefits in a couple of decades. Will they reduce benefits across the board, slowing the growth, increase the retirement age, or means test it, denying benefits to the “rich”, as Clinton essentially did by taxing social security, I’d guess the last two. If you’re “rich”, your benefits could go down under the present plan, as they did under Clinton. If you’re not “rich”, they probably wouldn’t.

None ot the privatization plans I’ve seen (or that would have ANY chance of passing) would reduce benefits for the disabled (I know that’s not you), or for American’s over about 50 or 55 today.

Essentially they’re designed to provide younger workers to effectively offset that decrease that IS coming with higher market returns.

Using a highly simplistic example of your example of the $50,000 worker, he might divert a quarter of his contribtributions ($800 of $3,200 per year), accepting for example a 35% reduction in his “guaranteed” retirement income, in the expectation that over time his private account will offset the reduction in income which is coming.

The big problem with these plans politically isn’t financial, they would work, it’s the fact that politically it forces us to stare the eventual insolvency of social security in the face, a task neither party has been up to as yet. And, of course, there's no reason privatization couldn't be completely voluntary, probably the fairest alternative for those in the 40 to 60 age range.

[Area51]

Perhaps instead of calling names you ought to check your facts.

There is Case Law where Idividuals have filed suit against the Government for claims against SSI and the Courts have ruled that The Government has NO Obligation to pay you a dime. Politically yes, Legally no.

[Area51]

And for the record, again SSI IS A TAX. NOT A PENSION PLAN.

[SamAdams76]

And half the tax is concealed by pretending that the employer pays it. But economists agree that a tax on wages ultimately comes out of the worker's pocket.

Good point. And I might add that when companies subsidize health care coverage for their employees, it comes out of the worker's pockets as well. When I first went into management 10 years ago, the "fringe" benefits for each employee was 28% of their salary. Now it is 40% of an employee's salary. What this means that if an employee receives a salary of $40,000, he is actually receiving $56,000 in salary, because the employer is paying $16,000 of it in the form of FICA, health and dental, insurance, etc. For those who wonder why wages appear to be stagnant, this is why.

[Area51]

The Case For Responsible Social Security Reform.

http://www.forourgrandchildren.tv/
To ensure that Social Security is there to provide for our children, grandchildren and the generations to come, The Committee For Good Common Sense, a non-partisan civic group, has created For Our Grandchildren. This new initiative is committed to saving and strengthening Social Security by giving today's workers the option to invest a portion of their Social Security payroll taxes into a Personal Retirement Account (PRA).

The need for such reform has never been greater. According to the 2001 Social Security Trustee's Report, the cornerstone of a secure retirement for millions of Americans is about to run out of money. In the year 2015, when the Baby Boomers begin to retire, Social Security will start spending more money than it takes in. And by 2038, Social Security will completely broke. No one wants to see taxes raised, debt increased, or retirement benefits cut or eliminated, but it could happen. The Supreme Court has ruled that any money paid into Social Security belongs to the government -- and not the taxpayers. In fact, none of us has a legally protected right to our benefits, and Congress is free to reduce or even eliminate benefits for any group of Americans.

A Project of The Committee for Good Common Sense P.0. Box 3539, Washington, DC 20007 202-337-4990 Copyright © 2001, The Committee for Good Common Sense

You apology is accepted in advance! :)

[Free the USA]

http://www.freerepublic.com/perl/bump-list

[staytrue]

the wealth gap between rich and poor grew wider as the stock market boomed in the late 1990s.

Seems to me during the 2000-2003 the wealth gap should have shrunk by about 8 trillion dollars. I think it should be time to have a "rich-aid" charity concert to help all the rich people who have become poor in the stock market melt down.

[SJackson]

If you were to check the IRS Website you'll note that employers withold FICA TAXes from their employees, which they send to the IRS along with thier own FICA TAX payment. The selfemployed, of course, pay the Self-Employment Tax. Like income tax, or the medicare tax, FICA is a TAX.

[ThinkDifferent]

OK, name me something, anything that costs less now than it did 30 years ago.

Computers, TVs, and many, many other technological products.

[hobbes1]

You beat me to it. I spoke with an African-American friend of mine a while back about this. I pointed out to him that a white woman who worked with him could expect to collect 120 more SS checks than he would. I asked him how fair did he think that was. He was convinced of the need for a privatized SS system after.

ROTFL...I go school at Night (Political Sci. major) And my uber liberal Prof is totally against the idea, but my entire clas save me and three others is Black.

Once I put the life expectancy facts out, they were all Convinced.

[hobbes1]

EVERY person that I know that has paid into S.S. recieves it when they retire.

And the black man that dies at 65 ?

[FITZ]

Wrong, SSI is a TAX. The US Government is under NO obligation to pay you a penny irregardless of how much you paid in.

People seem to forget this, SS is just a welfare program and what we pay into it is just another very big tax. It isn't our money once the government confiscates it, Bush can decide to send it to Mexico if he chooses and leave us with none of it.

[FITZ]

Now you're just getting silly. EVERY person that I know that has paid into S.S. recieves it when they retire. (or prove that they have become disabled, etc.) You can't say the same for private pensions or the stock market.

That's why S.S. is a tax & welfare plan not a retirement plan, if you choose to work until you're 75, you won't get "your" money, they won't give it to you unlike a private pension or stock market.

[hobbes1]

Actually, Joe, most things are less dear now, than they were thirty years ago.

Bread, Milk, Gasoline etc.....That's what a Rising standard of living means. A person can produce said good for their own consumption using a smaller aggregate amount of their labor.....

[hobbes1]

Presuming he has dependants, otherwise his money is stolen....