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CBO says Social Security is in trouble

Discussion in 'Economics, Business, and Taxes' started by lupehernandezdepedajack, Mar 19, 2014.

  1. Supposn

    Supposn Council Member

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    Wahbooz, I’m aware of no government so foolish as to hinder those choosing to invest within their jurisdiction.

    I do agree that income is income regardless of the source; I’m opposed to favorable tax treatment of incomes due to their sources or the methods by which the incomes were attained; (I’m opposed to “special strokes for special folks”).

    Sales taxes are a simple method of taxing consumption taxing almost all general sales transactions are usually flat rather than progressive or regressive taxes, They can to a limited extent be drafted to be somewhat more progressive.

    Venders in many jurisdictions have learned to their sorrow that conspiring with customers to evade their governments’ sales taxes are likely to be of financial and legal costs to themselves and their enterprises. Federal sales taxes upon products purchased or shipped overseas would legally be evaded (unless or until the products enter or returns to the USA).

    This proposed policy change of funding Medicare and half of Social Security retirement and long term disability costs is certainly less regressive than our federal FICA tax based upon payrolls. It will (more than otherwise) to some extent increase tax revenues and will not increase the tax burdens upon wage or salary earners.

    Respectfully, Supposn
     
  2. Wahbooz

    Wahbooz Governor

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    Therein lies your problem. Sates tax is based on consumption, while benefits are based on income. The vast majority of most working peoples income is spent on consumption, while people like me do not. Ergo, the majority of their income would effectively be taxed, where mine is not.

    I would get a far greater portion of Social Security benefits, compared to a working class retiree. Where would that be fair?
     
  3. Supposn

    Supposn Council Member

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    Wahbooz, employees' wages and salaries are subject to a FICA payroll tax of 7.65%%. For most families that are dependent upon wages or salaries, that is a 7.65% tax upon their entire or almost entire family incomes.

    Replacing FICA tax revenue by 9.1% of payrolls, (i.e. 4.55% from taxes paid by both employees and employers) with a 4.55% general sales tax would provide those families with an extremely insignificant tax reduction but it would increase the tax revenues for Medicare and Social Security. The proportion of increased revenue is dependent upon the proportional relationship of between the amounts of USA’s payrolls and our sales transactions.

    Additionally although employers pass their payments of FICA payroll taxes on to their enterprises’ customers, those taxes upon payrolls penalize employers that increase their payrolls.

    There’s no logical relationship between medical needs and incomes; that is why it’s proposed that the entire FICA revenues earmarked for Medicare be replaced with a sales tax. As you pointed out there is a logical relationship between income and retirement benefits; that is why it’s proposed that only half of FICA revenues ,earmarked for Social Security be replaced with a sales tax.
    When employees FICA tax contribution rates were reduced, this had no effect upon the calculation of Social Security benefits. That’s due to the calculations not being based upon taxes; the taxes are based upon taxable wages and salaries.


    Respectfully, Supposn
     
    Last edited: Jan 27, 2015
  4. Wahbooz

    Wahbooz Governor

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    You're talking in circles, and I suspect you have no comprehension. I am well aware that reducing FICA contributions did not affect benefits, nowhere did I say otherwise, because as I said benefits are based on income. This whole thing is nothing more than a smokescreen to remove obligations from one sector of the economy and heap it on another. Employer payments of FICA taxes does not affect the the employer one bit because those outlays are an expense to business and therefore reduces the adjusted gross income of a company. I will repeat, a sales tax will affect working class people far more than the wealthy, and the wealthy will continue to be the ones who reap the greater rewards from Social Security.

    Why people get sucked into these hair brained schemes is beyond me, but they sure seem to.
     
  5. Supposn

    Supposn Council Member

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    Wahbooz, this tax policy would reduce the direct and indirect taxes paid by wage and salary earners by an extremely tiny proportion. Its purpose is to retain or increase tax revenues to an extent that will better enable retaining Medicare and Social Security benefits which are of economic benefit to our entire economy and of significant financial benefit to the families of wage and salary earners. I doubt if it is an entire remedy but reducing Medicare or Social Security benefits for generations to follow would be contrary to our nation’s best economic and social interests.

    Currently earners of wages and salaries directly pay FICA payroll tax rates of 4.65% upon such incomes; employers also directly pay equal rates of FICA tax.

    Employer enterprises recover some of their tax expenditures as deductions from their taxable incomes and recover the remainder of their taxes by passing them on within the prices of their products. Dependent upon the proportion of U.S. sales transactions relative to U.S. payrolls, we all indirectly pay the equivalent of a 2.333% to 3.557% range of a federal sales tax imbedded within all prices of U.S. goods or services.

    Thus families of wage and salary earners who spend almost their entire incomes for such purchases, directly and indirectly pay their portions of FICA taxes that are the equivalent of a federal sales tax within a 7% to 8% federal sales tax.

    Replacing the sum of employees and employers FICA taxes by 4.55% of U.S. payrolls with a 4.55% federal sales tax would very slightly reduce the sum of direct and indirect taxes upon families dependent upon wages and salaries.

    Employers will continue to recover their contributions to Medicare and Social security funding by reductions of their incomes subject to income taxes and passing on the remainder of those expenditures within the prices of their products.

    Although employers recover their tax expenditures, the current direct taxation of employers based upon their payrolls is detrimental to enterprises’ cash flow; we’re penalizing employers who increase their payrolls. This is particularly detrimental to young start-up enterprises.

    Tax revenues are increased because the reductions of FICA taxes directly paid by employees are defrayed by the additional federal sales tax paid by all of us. This becomes more important if and when it becomes necessary to increase the funding of these programs.

    Respectfully, Supposn
     
  6. Lukey

    Lukey Senator

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    In the late 60s and through the 70s, my dad was a minority owner in the small manufacturing business where he was the CFO. I had a company credit card that I used for gas and car repairs, as did the majority owners kids. All that was run through the business to lower compensation (and taxes). You can't get away with that now.
     
  7. SW48

    SW48 Administrator Staff Member Supporting Member

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    How about reducing any other entitlements by the amount necessary to make social security whole each year. After all it was the workers that paid taxes that paid for the other entitlements and their own social security.

    Seems pretty simple.
     
  8. Wahbooz

    Wahbooz Governor

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    Say what? Maybe I don't fully understand what you are trying to say, but perks like that were always a part of compensation, and they did not lower compensation and taxes; that is nothing new. Depending on the type of organization, the money you spent on the companies credit card was either direct compensation or owner draw. Either way the tax liability was passed from one entity to another.

    That may 'lower' the companies taxes, but that also increases the compensated employees taxes; and there are several FASB statements to cover the handling of that. I have been in finance and accounting too long to know any different.
     
    Last edited: Feb 3, 2015
  9. Lukey

    Lukey Senator

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    Then you should know how easy that rule was to violate back when taxes were much higher.
     
  10. fairsheet

    fairsheet Senator

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    Social Security itself, is simple and not nearly so out of whack as it was back in the 80's - the last time we "fixed" it by essentially doubling the rates. To "fix" it now?.....would be child's play.

    The reason no one's making a serious effort at fixing it and the reason "everybody's" preaching rack and ruin, is because BOTH parties - GOP's and Dems - benefit from the uncertainty they're sowing.
     
    • Like Like x 1
  11. Supposn

    Supposn Council Member

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    Lukey said:
    In the late 60s and through the 70s, my dad was a minority owner in the small manufacturing business where he was the CFO. I had a company credit card that I used for gas and car repairs, as did the majority owners kids. All that was run through the business to lower compensation (and taxes). You can't get away with that now.

    Wahbooz, I accept at face value your statement and implication of you’re familiarity with taxes, enterprise’s expenditures and other general financial accounting matters. My acceptance of your stated knowledge leads me to conclude your questioning the point of Luckey’s post is an act of duplicity.


    I suppose you completely understood that to the extent that enterprises’ owners can comingle their personal and enterprises’ expenditures they can reasonably understate their enterprise’s net incomes and additionally reasonably understate their personal incomes subject to any income taxes. Those enterprise owners do not declare those personal expenditures paid by their enterprises as subject to income taxes.

    Similarly, when enterprises deliberately tolerate (if not actually encouraging) their executive employees to comingle personal and enterprise expenditures within their expense accounts, the enterprise receive a tax deduction for the expenditures and the employee that does not declare the personal expenditures as personal income, have received “under the table” bonuses. The enterprise has increased their employees compensation at lesser (for similar valued compensations), costs to the enterprises.


    Such illegal tax evasions are extremely difficult to detect and prosecute when individually practiced at lesser scales; such tax evasions are extremely common and their aggregate consequences are significant losses of annual tax revenues.


    Respectfully, Supposn
     
    • Agree Agree x 1
  12. Fast Eddy

    Fast Eddy Mayor

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    A big part of the problem is the SSI roles have gotten huge and many that never payed in are drawing on it. Get these people off.
     
  13. Supposn

    Supposn Council Member

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    Fast Eddy, Social Security Administration oversees many programs. Their retirement and their long term disability plans are funded by Federal Insurance Contribution Act’s, (FICA’s) tax revenues.


    Supplemental Security Income, (SSI) operates as a federal charity program; it is funded by general federal revenues. That’s an entirely different concept than the retirement or the disability programs.


    Respectfully, Supposn
     
  14. Wahbooz

    Wahbooz Governor

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    Just as easy as it is now. People violate GAAP and tax rules all the time, the only difference is today there are those who do it like they were predators. And why? Because they can tie the IRS up in tax court until it is willing to settle for pennies on a dollar.
     
  15. Wahbooz

    Wahbooz Governor

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    I have no idea what you're saying, when you use the term duplicity. Simple fact is Lukeys comment has nothing to do with how FICA taxes are collected or the benefits paid. If an employee allows an employer to play with his compensation he or she is who loses, as well as the country by employers who cheat on their taxable income. And as such it has nothing to do with whether we should continue with FICA and Medicare taxes, or revert to a sales tax. I will say it again, a sales tax over the present program is a sham to place the majority of the burden of those programs on the backs of working people alone. And with some $3 trillion in government securities, Social Security is just fine. The problem is with the politicians.
     
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    Last edited: Feb 4, 2015
  16. Supposn

    Supposn Council Member

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    Wahbooz, we agree that Lukey’s post of 7: 18 AM, 3Feb2015, your response to Lukey’s post and my criticism of that response are all unrelated to the FICA payroll based taxes or to sales taxes. The taxes Lukey and I were referring to within those posts were taxes upon net incomes.


    In cases where the enterprise’s owners comingle their commercial and their personal expenses, their portions of undeclared personal incomes reduce their personal taxes and they additionally understated their enterprises net incomes which better enables them to skim off untaxed revenues from their enterprises.

    In cases where the employees were padding their expense accounts, it served as untaxed personal income.

    Some employers deliberately tolerate or actually encourage such padding because it serves as an undeclared fringe benefit to employees. Because the employees’ fringe benefits are not declared as incomes, the employees enjoy untaxed compensation which is of greater value than taxed compensation. This in effect enables the enterprises to grant those favored employees greater bonuses at no greater net expense to their enterprises.


    The consequences of all of these cases are in aggregate government’s significantly reduced tax revenues.

    But I believe your pretense of not understand all of this is an act of duplicity.


    Respectfully, Supposn
     
  17. Wahbooz

    Wahbooz Governor

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    There is a lot more to it than just that. Not only are they reducing their own personal tax liability, but they also reduce the enterprises tax liability. And they reduce their obligation as far as the employers share of FICA taxes.

    As well the employee may pick up 'free' perks, but they also reduce their income and this is what Social Security benefits are based on.

    And explain duplicity. This whole sales tax thing is nothing but another scam.
     
    Last edited: Feb 5, 2015
  18. Lukey

    Lukey Senator

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    Nope. You sure you're an accountant? You used to be able to fully depreciate business autos and write off all expenses associated with them. Now you have to apportion the expenses between business use and personal use.
     
  19. Woolleybugger

    Woolleybugger Mayor

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    The government really does not need to tax us to spend money. They could decide that the economy demands an extra 4 trillion every year in extra spending and until such time as inflation returns, we would never know the difference. Remember, the government issues money and they will never, ever run out of money. Impossible.
     
  20. Wahbooz

    Wahbooz Governor

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    I can certainly tell you're not an accountant. You always had to account for personal use of any business property. Perhaps you can explain to me which FASB statement proves your claim, or an ASB statement from that era, or perhaps an IRS code section that shows personal use can be expensed out as if it were associated with doing business, and when this dramatic change took place. There has never been a time when the 'cost of doing business' included personal use of plant assets.
     
    Last edited: Feb 5, 2015

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