Cafe Hayek
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Here’s a letter to the New York Times:
Monique Morrissey wants to fix Social Security by forcing employers to “pay their share of the [Social Security] tax on their employees’ full salaries” rather than on only the first $106,800 of each employee’s annual earnings (“Employers Should Pay Up,” August 22). She illustrates by pointing out that, under her proposal, LeBron James’s employer, the Miami Heat, would pay an additional $900,000 annually in Social Security taxes.
Ms. Morrissey’s scheme might or might not “fix” Social Security. Either way, though, these additional taxes would be paid in large part, not by employers, but by employees. Knowing that they must pay more to Uncle Sam for each employed worker, employers would offer wages and salaries lower than they offer with the current cap in place.
LeBron James might possess unique-enough talent to arm-twist an NBA franchise into paying higher annual taxes on his behalf without reducing his take-home pay. It’s doubtful, however, that ordinary accountants, high-rise construction workers, supermarket managers, and other employees whose annual earnings exceed the current Social-Security-tax cap will be as fortunate.
Sincerely, Donald J. Boudreaux
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Methinks1776 If this suggestion fixes social security it only "fixes" social security by making it another welfare program. Presently, SS differs from income tax by creating a future liability which is tied to the amount paid into the program (never mind that it's not really paid into anything but the greedy hands of the political class). Those paying the most get back slightly less than they paid in and those making middle incomes are paid slightly more. If the entire income is subject to FICA, then SS is simply another massive wealth transfer.Labour will pay for this adventure. The incentive effect will be enormous - especially in conjunction with Obama's punitive new taxes and the States' desperate attempts to maintain their public unions in the style to which they have become accustomed. A large incentive effect will surely mean that the wealth necessary to make good on all those promises will surely just not be generated.Punishing people for producing does not increase production. It never has. It never will. Pfloyd Even if the cap was removed, it doesn't eliminate the Ponzi-scheme-esque nature of Social Security as those additional funds became additional future liabilities that will have to be paid out to those people when they retire, all things being fair. That means all removing the cap will ultimately do is kick the can down the road. Gil What's stopping young people from cancelling the S.S. debt? In other words, simply say "screw you, we're not paying for it, you can rely on charity"? johndewey Young people do not have the votes.Every generation will claim they are not counting on social security, and so it makes no difference to them if social security survives. But after 12 percent of their incomes are taken from them for all their lives, they find they did not have enough left over to save enough to totally fund retirement. So when they reach about age 48 to 50, they realize they are dependent on that future income stream from social security. That means that almost all voters from 48 to 100 will vote for elected officials who continue social security. The voters from 18 to 47 cannot overcome the demographics. Methinks1776 You may be right for now. I don't think the age group you mentioned demands Social Security for the reasons you list. I think it's because they can. That voting block includes a bunch of retirees with nothing better to do than vote - and the politicians know this. It's in their interest. Why not?Voters 18-47 don't have the political votes to stop SS. But, they vote by actions and the more they are taxed the less productive they will become - at least in the official, taxable economy. So, Seniors can stomp their feet and vote in any politician they want to do their dirty work for them, they still won't get others to pay for all that is promised to them. Oh, at first, the locusts will feed, but at some point the whole thing falls apart like rotted wood. Unfortunately, taking growing chunks of the U.S. economy with it.No scheme that gives one man the right to the product of another man's labour ever works unless the man doing the producing is reaching into his own pocket of his own free will.Any way you slice it, it doesn't work. It is a failure. It is kaput. John McDonnell "ordinary accountants, high-rise construction workers, supermarket managers"... okay accountants I can see. But supermarket managers?? Those have to be some loaded supermarket managers. This is really just turning a regressive tax into an income-neutral tax... why is a regressive tax so much more desirable than an income-neutral tax? Why not replace it entirely with a VAT or something?I think payroll taxes are probably excessive. But it's hard to argue that the present system with a cap makes any sense. I think if you're going to drop any pretense of SS as forced savings, you should really just roll in payroll tax with regular income tax. johndewey You and Adam Hockenberry seem to be criticizing Professor Boudreaux's selection of professions who will bear the burden of Ms. Morrisey's SS cap expansion.Professor Boudreaux did not state that all store managers, accountants, and high rise construction workers earn the social security cap. He merely said that workers in those professions who earned that much would bear the burden of the employer tax. The BLS's Occupational Outlook Handbook provides statistics about the salaries of accountants. In 2008:"the top 10 percent earned more than $102,380"That would be approximately 130,000 ordinary accountants who earned more than the social security cap for that year.According to Wiki.Answers.Com, all WallMart store managers who make their plan earn at least $112,000 in salary and bonus. Managers of the largest Walmarts earn twice that amount.I could not find information about high rise construction workers. But I do know that mechanics who work on offshore oil rigs "“ several of whom are my relatives - regularly make in excess of $100K in regular and overtime earnings.One point Don was making is that it is not a few wealthy folks but rather some very numerous and common professionals and even blue-colalr workers who will be affected. John McDonnell Okay but my point is that those blue-collar workers are very well off. Remember, you're only paying extra for income past 100k, so your burden is small if you're only a little bit over. Most of the burden would fall on those in the top 5 income percentile: if they're rich from blue-collar work they're rich just the same, I don't see why it makes any difference what you do. Keep in mind also that this would definitely be combined with lowering the rate of payroll tax so it would probably spell net relief for anyone earning less than some amount greater than 100k (maybe 120k? depends on the cut), which would be the vast majority of taxpayers. I personally would certainly benefit, not that that makes it right necessarily.But the point that you've missed entirely is that this is that this is a question of where the tax burden should fall, not a question of where it will fall. The huge distortion in the current system is that people who earn a little bit less than 100k have much higher marginal taxes than those who earn a little bit more, which is sort of weird and seems undesirable. So if you favor the current system, that's really because you favor regressive taxes, and if you really favor regressive taxes, why don't you think all income tax should be regressive? No matter what you think is the right distribution of tax burden, why shouldn't you actually be in favor of rolling payroll tax into regular income tax and then figuring out how much everybody should pay? Nobody would have designed a system where the marginal tax paid by those earning 100k is 30%, and the marginal tax of those earning 105k is 15% (fill in these numbers with the actual ones, the point will hold). johndewey " The huge distortion in the current system is that people who earn a little bit less than 100k have much higher marginal taxes than those who earn a little bit more, which is sort of weird and seems undesirable. "If you understood how the current system was designed, you might not think it is so weird. The intent of the social security system design was to provide total benefits in retirement which were somewhat proportional to the amount of taxes paid over one's lifetime. The designers knew that such proportional benefits would be too small to provide an adequate safety net for low income workers. So a minimum level of benefits was provided for those workers which was definitely not proportional to the taxes contributed. It is low income workers who come out way ahead with social security.The designers also did not want to provide a lavish retirement for high income earners. So they capped both the taxes to be paid during working years and the benefits to be provided in retirement. There is nothing at all weird about this design.The major failure of the social security system was that demographics changed in ways the designers could not predict. They could not foresee the increased longevity of future retirees. They foresaw neither the post-War baby boom nor the post-Pill baby bust.Please understand that I am not defending social security. I'm merely trying to help you understand the reason a cap in both taxes and benefits was put in place. Methinks1776 The major failure of the social security system was that demographics changed in ways the designers could not predict. They could not foresee the increased longevity of future retirees. They foresaw neither the post-War baby boom nor the post-war baby bust.John Dewey,Not being able to foresee such things is a major flaw of all Ponzi schemes. Another major flaw is that the first recipients of the payouts never paid into the system. Then, of course, there's no way to stop the political class from using SS tax income as their personal slush fund. And, of course, even though the designers could predict none of the things you mentioned, they did think the whole thing would be bankrupt by the 1980's - FDR himself expressed reservations because of this.The biggest problem of all is that the government has put itself in charge of...well....anything.SS was not in its original design nor in practice a sustainable scheme. It may have seemed to the population like a predictable alternative to losing everything in the great depression, but that was always a mirage.Ponzi schemes always are. John McDonnell AghPrevious post: Some Links
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