What if they increase FICA Taxes to all income?

[Anarchist420]

I think that would suck because it would increase some peoples' taxes by almost 15.3 percentage points of their income.

Is it likely to happen? I know that George W Bush was considering doing that, and I know that Obama wants to.

Not only that, I also worry that SS will be "privatized" rather than phased out.

 

[MayorOfAmerica]

What if they don't?

 

[sunzt]

What if Godzilla comes out and eats Charlie Sheen??

 

[MovingTarget]

Then SS would be made more solvent. Aside from separating monies collected by FICA from the general fund, it is long overdue.

 

[Capt Caveman]

The world is flat.

 

[Londo_Jowo]

What if frogs had wings?

 

[piasabird]

The Government will just waste and spend more of your money. The government is the problem, not the solution.

 

[child of wonder]

What if the government stopped spending so much fucking money?

 

[dullard]

I think that would suck because it would increase some peoples' taxes by almost 15.3 percentage points of their income.

That quoted statement is not correct. The typical FICA taxes are this:
1) 6.2% of income up to the annual maximum for SS from employee.
2) 6.2% of income up to the annual maximum for SS from employer.
3) 1.45% of income for medicare from employee, no limit.
4) 1.45% of income for medicare from employer, no limit.

Thus, only people above the annual maximum (currently $106,800) would be affected. And since the medicare part was already taxed with no limit, the increase would be 12.4%, not 15.3%. Finally, in some cases the SS tax is tax deductible. So, in reality, only income over $106,800 will be taxed UP TO 12.4% more.

The drawback: a subset of the population pays more tax.

The benefits: people realize that FICA taxes are bigger than income taxes and they fight for lowered FICA tax instead of just fighting for lowered income tax. The republicans have been doing America a big disservice by ignoring FICA tax rates. Also, SS would be fixed forever.

Reagan fixed SS in the 1980s for what was thought to be the last fix ever needed. But that fix used one assumption. That assumption was that 90% of income was under the income limit. The problem with SS is that assumption soon became false. Since the 1980s, the rich got much, much richer forcing more and more income over that limit. This is why SS is broken now. Putting the limit to an automatically adjusting limit to capture 90% of taxes would fix it forever. We don't need to tax all income at 15.3%, just 90% of it.

Note: for 2011 only, it isn't even 15.3% total. But I don't want to go into that much detail since that tax break is temporary.

 

[dullard]

Here is an example: Suppose a person was making $300k per year of earned income. The current system has that person paying $21,943.20 in FICA taxes. If the income limit was removed entirely, it would go up to $45,900 in FICA taxes. That person would pay $23,956.80 more in FICA taxes. $23,956.80 / $300,000 = 7.99% tax increase.

Notice how that is far less than the 15.3% you said in the OP.

If that person was self employed, then half of that $23,956.80 can be deducted from the income tax. So, there would be a $11,978.40 tax deduction. At the 35% tax bracket (28% federal, 7% state assumed), that becomes a $4192.44 reduction in income taxes.

So your suggested change would have them pay $23,956.80 more in FICA taxes and $4192.44 less in state and federal income taxes. A net gain of $19,764.36 of total taxes. That comes out to $19,764.36 / $300,000 = 6.59% net increase in taxes for the self-employed.

Note: this gets more complex if a person has unearned income (dividends for example). But you didn't clarify if you wanted FICA taxes to stay how it is now (only earned income) or change to include unearned income, so I didn't include that complication.

 

[spidey07]

Dullard, the point remains the same. It would be a massive increase in taxes. 23K is still a lot of money that just gets evaporated from your pocket.

The reason why it shouldn't be raised is then people would be paying way more in than what they would ever receive in benefits. THAT is wealth redistribution and we don't want that in this country. It's no surprise that Obama of course supports this.

 

[dullard]

Dullard, the point remains the same. It would be a massive increase in taxes. 23K is still a lot of money that just gets evaporated from your pocket.

The reason why it shouldn't be raised is then people would be paying way more in than what they would ever receive in benefits. THAT is wealth redistribution and we don't want that in this country. It's no surprise that Obama of course supports this.

You are correct that it would be a massive increase in taxes on the wealthier people.

I happen to believe in one main tax ideal (few people agree with me, so feel free to disagree publically). My belief is that the only way people would truely unite in fighting spending is if they had to pay for the spending instead of borrowing and letting the future generations pay for it. Yes, there are some debates in congress now about minor cuts to discretionary spending. But those cuts are small and discretionary spending is small to begin with. The only way we'll get true reform with most politicians and the public backing the reform is if people paid the true costs NOW.

Thus, I'm in favor of short term tax hikes in order to get people to want spending cuts (and thus long term tax cuts).

Also, we already have built-in wealth redistribution. The wealthy write the rules of business and the rules of law. Thus, they write them in their favor. In 1983 the top 20% had 81.3% of the total net worth. In 2007, they had 85.1% of total net worth. Link to data. Income is being redistributed from the poor to the wealthy. I personally want to halt that redistribution. I want to keep things where it is now. If tax codes have to do it because the wealthy won't do it, then so be it.

You seem to WANT the redistribution.

 

[Anarchist420]

Here is an example: Suppose a person was making $300k per year of earned income. The current system has that person paying $21,943.20 in FICA taxes. If the income limit was removed entirely, it would go up to $45,900 in FICA taxes. That person would pay $23,956.80 more in FICA taxes. $23,956.80 / $300,000 = 7.99% tax increase.

Notice how that is far less than the 15.3% you said in the OP.

If that person was self employed, then half of that $23,956.80 can be deducted from the income tax. So, there would be a $11,978.40 tax deduction. At the 35% tax bracket (28% federal, 7% state assumed), that becomes a $4192.44 reduction in income taxes.

So your suggested change would have them pay $23,956.80 more in FICA taxes and $4192.44 less in state and federal income taxes. A net gain of $19,764.36 of total taxes. That comes out to $19,764.36 / $300,000 = 6.59% net increase in taxes for the self-employed.

Note: this gets more complex if a person has unearned income (dividends for example). But you didn't clarify if you wanted FICA taxes to stay how it is now (only earned income) or change to include unearned income, so I didn't include that complication.

You're right, about the Medicare tax being 2.9 percentage points of the 15.3% rate, I wasn't thinking.

However, if someone makes $2million per year, then they get a lot more than 6.59% net tax increase. Also, that person would almost assuredly be in the 35% Federal tax bracket so their effective Federal income tax rate would be just under 35%. So if the FICA tax cap was raised to all income, someone making 2m or more would be paying somewhere in the neighborhood of 50-60% of their income in taxes (state sales tax, property tax, state income tax, local income tax if applicable, federal income tax, FICA).

That's not fair.

Also, as Spidey said, they'd might not get anywhere close to the best possible return on the money that was stolen from them in the form of FICA taxes.

 

[dullard]

However, if someone makes $2million per year, then they get a lot more than 6.59% net tax increase. Also, that person would almost assuredly be in the 35% Federal tax bracket so their effective Federal income tax rate would be just under 35%. So if the FICA tax cap was raised to all income, someone making 2m or more would be paying somewhere in the neighborhood of 50-60% of their income in taxes (state sales tax, property tax, state income tax, local income tax if applicable, federal income tax, FICA).

That's not fair.

Very few people make $2 million in earned income. I don't know the data, but I'd estimate that the vast majority of people making $2/year are probably having a significant portion of that income as unearned income. How many millionaries don't have at least SOME investments?

As it is, the unearned income doesn't pay FICA taxes, nor does it pay the full income tax rate. The typical example is long-term capital gains. Those gains are taxed at 15% federal (and varies by state).

Now the question comes: how much of that $2 million is earned vs. unearned? If most of it is earned, then yes, they would be approaching 60% tax. If most of it is unearned, then they'd be approaching 20% tax. 20% is probably equal to or less than what most poor or middle class working people pay (if you include the 15.3% FICA taxes, income taxes if any, etc.)

Is it fair for someone making $2million to pay a lower rate than someone making $100k? And since when are taxes about fairness?

Also, as Spidey said, they'd might not get anywhere close to the best possible return on the money that was stolen from them in the form of FICA taxes.

I'd be quite happy to let a person choose to end SS if that person also ends the up to $49k/person tax deduction for investing in retirement accounts, end the often completely untaxed retirment gains, and end the special long-term capital gains tax rate. With that in mind, I bet the wealthy would gladly pay 15.3% FICA and 15% long term capital gains than pay the full 35% income tax. Put the whole picture together and you see that the wealthy are actually benefiting from this rats nest of tax rules rather than being harmed.

In other words, what would their net return be if they weren't given all these tax breaks in exchange for a small rate of return on FICA taxes?

 

[cubby1223]

Thus, I'm in favor of short term tax hikes in order to get people to want spending cuts (and thus long term tax cuts).

Kind of.

You'd need an across the board tax hike. If the hikes hit just a percentage of people, then generally those not hit are in support of the hikes. Have a political party saying you deserve benefits paid for by someone else, you have your supportive voting block against spending cuts.

 

[dullard]

You'd need an across the board tax hike. If the hikes hit just a percentage of people, then generally those not hit are in support of the hikes. Have a political party saying you deserve benefits paid for by someone else, you have your supportive voting block against spending cuts.

I'll agree with that.

As it is now, politicians can pass any spending they want and not touch taxes. The result is "free" things for their voters with the next generation paying the bill. We need each and every spending increase to come with a tax increase (and spending cuts to come with tax cuts). Then and only then will we be able to have the strength to cut spending.

 

[child of wonder]

(and spending cuts to come with tax cuts).

After we've paid off the national debt, yes. Not like George W. Bush did with his $300 checks to everyone.

 

[brencat]

The current tax structure places way too much burden, IMO, on those with earned income vs unearned income. Meanwhile the investor class clipping a massive coupon on an investment portfolio is largely skipping SS taxes and paying ~ 15% effective tax rate on cap gains. We need to subject *some* unearned income to SS taxes, perhaps raise the amount of earned income subject to it.

My view would change however if we are going to means test SS in the future (which is the best course of action, in my view). In that case, because the 'rich' would likely receive little or no benefit under that scenario, then it would be inappropriate to tax them more.

 

[JS80]

Are you going to start paying Social Security benefits based on investment income?

Stupid idea is stupid. Smoke and mirrors. There's no difference between raising the tax rate vs this stupid idea.

 

[Patranus]

America don't have a taxing problem, it has a spending problem.

The federal level needs to go back to its constitutional role and be limited to doing what the states cannot do for themselves.

The federal tax rate needs to be closer to what the current state income tax rates are.

This would then allow the states to rise (or lower as they see fit) taxes to fill the individual state needs.

 

[wuliheron]