Tax Relief Act

[WuDrWu]

http://biztaxlaw.about.com/b/2010/12/21/tax-relief-act-and-payroll-changes-including-w-4-and-withholding.htm

Again I look to the more informed of Shockernet for clarification of at least one of the items in this monstrosity.


As I understand it, in 2011, the amount of FICA (the amount taken off the top of everyone's paycheck) will be reduced from 6.2% to 4.2%. This has nothing to do with the 1.45% withheld for Medicare.

Now, the employer matching funds are to remain at 6.2% meaning there is no break for the guy footing the bill, creating the jobs and taking the risks. Okay.

So help me to understand this.....Social Security is going to see a substantial decline in expected monies received in 2011. For instance, for every $1000 in wages in 2010 the government collected $124 (6.2% or $62 from both the employee and the employer). In 2011 they will only collect $104. That is a decline of about 16% if I did the math correctly (no promises).

So, Social Security will take in 16% less in 2011. I can't find total wages in the US, but 16% less seems like a sizable amount.

Now here are my questions:

Social Security is already on a path to failure. There is no lock box, no funds sitting in a bank. We spend all that money today, and just write IOUs. Does this not just accelerate that?

Are benefits going to be reduced? Are my potential benefits going to be reduced because I "paid in" less in 1 year than say a guy that retires December 31 of this year? Or is everyone working in 2011 just getting a $1000 bonus, with no penalty, assuming we collect from SSI at some point (likely we will or our dependents).

Is this just kicking the can down the road to make it someone else's problem, yet AGAIN?

What am I missing?

[Smooth007]

I don't see anything wrong with your thought process. Stimulus now, #@#@ us later. You nailed it.

[Maggie]

As to the first part, I don’t think you are missing much (but I have not studied the ins and outs). Simply put (without going into whether this is a good idea as implemented) you have identified a flaw in the structure of the payroll tax holiday: Social Security benefits are funded by payroll taxes. If we want higher Social Security benefits, then we need to collect more payroll taxes. If we want to relieve payroll taxes, then we can finance less in Social Security benefits. Either policy is a valid choice. What is not valid is to refund the payroll tax while still pretending that we are successfully financing higher future Social Security benefits with money we haven’t collected.

As for the second part of your post, who knows? I suppose that depends upon how Washington addresses the problems with entitlements.

[ABC]

It is a myth that there is a seperate account/lock box for social security funds.

Social Security is nothing more than an obligation to pay citizens upon their retirement.

Up to now the amount we are collecting today from employees and employers is more than enough to pay for current retirees. Congress spent the surplus.

Here is a recent editorial in the KC Star by their one right-of-center writer that does a good job of splaining:

http://www.kansascity.com/2010/12/25/2541981/more-mythbusting-on-social-security.html

I've always thought that the major debates about Social Security did not focus enough on the huge payroll tax burden on both the employer and the employee.

12.4% of your paycheck goes to the goverment! Think how much bigger your retirment would be if you had that in your pocket or 401K and could pass along to your heirs?

SS is a seriously flawed system and notion. It will be difficult to change though, b/c of the cost to change to a private system, but I think that is where we are headed.

The opposition from the left, consistent with their world view, is that they don't think people can make decisinos for themselves for retirement.

Ironically Federal employees make their own decisions and have a variety of retirement investment optiions. There is no reason normal ol' citizens can't make their own financial decision regarding retierment.

And for those who think the stock market is way too risky, it isn't as risky as relying on the Federal government. See below. Even if folks cash out at the bottom of the stock market, they beat the government.

"A couple who worked from 1965 to 2009 would have beat the government payout by 75%."

http://online.wsj.com/article/SB10001424052748703794104575546491036105542.html?mod=wsj_share_facebook

[1979Shocker]

The problem we would have if people no longer had to pay into Social Security would be that most would end up using the extra money to pay down debts, use it towards the down payment for a car, a house, etc. instead of putting the money into a retirement account. If the government required us to put money into some kind of retirement account, that would be no different than what they plan to do with the Healthcare plan where everyone is required to have health insurance.

If I wasn't required to pay into Social Security back when I first started working, I think it's unlikely I would have put any money into a retirement account. I most likely would have spent it. And I think that's what most people just starting out in the workforce would end up doing.

[SubGod22]

I've always been a saver. I wish I were given the choice to put the money away myself instead of into a gov't account I'll most likely never see. If I could start that now I'd gladly do so as well and be more than willing to forfeit anything I've already paid in since I was never going to see it again anyway.

[ABC]

The problem we would have if people no longer had to pay into Social Security would be that most would end up using the extra money to pay down debts, use it towards the down payment for a car, a house, etc. instead of putting the money into a retirement account. If the government required us to put money into some kind of retirement account, that would be no different than what they plan to do with the Healthcare plan where everyone is required to have health insurance.

If I wasn't required to pay into Social Security back when I first started working, I think it's unlikely I would have put any money into a retirement account. I most likely would have spent it. And I think that's what most people just starting out in the workforce would end up doing.

Okay, so you want government to protect you from yourself? You don't think people can make their own retirement decisiions?

What else do you want to have government decide for you?

You raise an interesting point comparing SS to the health care mandate, but government is requiring us to put money to the governmetn for "retirement".

[1979Shocker]

The problem we would have if people no longer had to pay into Social Security would be that most would end up using the extra money to pay down debts, use it towards the down payment for a car, a house, etc. instead of putting the money into a retirement account. If the government required us to put money into some kind of retirement account, that would be no different than what they plan to do with the Healthcare plan where everyone is required to have health insurance.

If I wasn't required to pay into Social Security back when I first started working, I think it's unlikely I would have put any money into a retirement account. I most likely would have spent it. And I think that's what most people just starting out in the workforce would end up doing.

Okay, so you want government to protect you from yourself? You don't think people can make their own retirement decisiions?

What else do you want to have government decide for you?

You raise an interesting point comparing SS to the health care mandate, but government is requiring us to put money to the governmetn for "retirement".

I don't think anyone just starting out will make any kind of retirement decision. A 20-year old doesn't care about any of that stuff. And I'm sure they don't want the government telling them they have to do something.

[RoyalShock]

So your answer is that the government needs to take it? Where do you draw the line? Healthcare is now firmly on top of that line and just waiting to duck behind it.

A society without personal accountability is not free.

They could teach the need for retirement savings in school. You know, something that might actually be useful in life. If someone chooses to ignore it and go their own way, let them suffer the consequences.

[SubGod22]

So your answer is that the government needs to take it? Where do you draw the line? Healthcare is now firmly on top of that line and just waiting to duck behind it.

A society without personal accountability is not free.

They could teach the need for retirement savings in school. You know, something that might actually be useful in life. If someone chooses to ignore it and go their own way, let them suffer the consequences.

:yes:

[wufan]

I would also add that the government could mandate that a percent of your wages go into a retirement fund, but the fund could be of the individuals choice/risk. You MUST invest 12% in a retirement fund, but that could be a savings account, annuity, mutual fund, or other. That adds a layer of stability to the government in which they don't have to plan to support an individual past the age of retirement, but allows the individual to choose his path to financial independence.

This is how most 401K's work, but rather than a forced investment, you have an investment incentive, i.e. if I put 3.5% into my 401K (in which ever fund I choose), my company adds 7% (yeah, my company is THAT GOOD) to the same fund for my retirement.

[ISASO]

The problem we would have if people no longer had to pay into Social Security would be that most would end up using the extra money to pay down debts, use it towards the down payment for a car, a house, etc. instead of putting the money into a retirement account. If the government required us to put money into some kind of retirement account, that would be no different than what they plan to do with the Healthcare plan where everyone is required to have health insurance.

If I wasn't required to pay into Social Security back when I first started working, I think it's unlikely I would have put any money into a retirement account. I most likely would have spent it. And I think that's what most people just starting out in the workforce would end up doing.

So what's next? Outlawing McDonalds Happy Meals with toys?

[Maggie]

The problem we would have if people no longer had to pay into Social Security would be that most would end up using the extra money to pay down debts, use it towards the down payment for a car, a house, etc. instead of putting the money into a retirement account. If the government required us to put money into some kind of retirement account, that would be no different than what they plan to do with the Healthcare plan where everyone is required to have health insurance.

If I wasn't required to pay into Social Security back when I first started working, I think it's unlikely I would have put any money into a retirement account. I most likely would have spent it. And I think that's what most people just starting out in the workforce would end up doing.

Okay, so you want government to protect you from yourself? You don't think people can make their own retirement decisiions?

What else do you want to have government decide for you?

You raise an interesting point comparing SS to the health care mandate, but government is requiring us to put money to the governmetn for "retirement".

There is a legal distinction between the individual mandate in the healthcare law and programs like Social Security, Medicare, and Medicaid. I caution that most of you will find the distinction a bit fair fetched. In any event, essentially, Social Security, Medicare and Medicaid are government programs but the individual mandate requires people to buy a private product.

The Supreme Court held that Social Security is constitutional because they bought the argument, back in the 30s, that collecting payroll tax and paying out Social Security checks were independent of one another: The first falling within Congress’s power to tax and the second falling within its power to spend for the general welfare. Medicare was an amendment to the Social Security Act; therefore, it is also constitutional pursuant to this ruling. Because Medicaid is financed by general tax revenue, its constitutionality under the general-welfare clause is even more secure, according to current legal reasoning.