Social Security

[wanamingo]

What loopholes would you close/fix?

I never understood this argument either. Romney couldnt say what he would close, and for some reason they think that "Closing Loopholes" is strictly a republican idea..... Its not.

 

[johnsonma]

I never understood this argument either. Romney couldnt say what he would close, and for some reason they think that "Closing Loopholes" is strictly a republican idea..... Its not.

Its make sense in way because it makes the tax code much clearer. An example would be that you can afford a more expensive house because you get some of it back through the mortgage deduction. Technically your living beyond your means but relying on the deduction to get by. It would be better to just not have the deduction so people would live within their means but getting rid of it would be the equivalent of increasing taxes on the middle class because of the additional burden on their incomes. Thats why Romney could never say which loopholes he would close because of lot of them would work like the mortgage deduction. Maybe when the economy is growing at a steady pace we could absorb the transition that would happen from certain loopholes being closed, not really sure how much damage it would do right now. I think the best bet would be to phase it out over a few decades if possible. Thats just the mortgage deductions too, plenty more loopholes out there and some are even trickier.

 

[riser]

I liked writing off mortgage interest since your first few years you're pretty much paying almost all interest.. and the amount is significant since you're putting that money into the market to be used.

There are a lot of loopholes people use. I would only close ones if the tax rate was lowered to accomodate. For example, the private jet loophole could be closed as previously argued. There are a lot of loopholes out there that I'm not even aware of because I haven't interacted or made enough money to benefit from them.

The tax code is huge. Simplify it with a lower tax rate and no write offs, or far fewer write offs (such as a roof for a house, one time student loans, mortgage interest, charity, religious donations, etc).

 

[musical marv]

SS was drying up long before tax breaks. I would argue the last 4 years of +8% unemployment has hurt SS far more than tax breaks.

With higher unemployment you have less money going into SS and more people getting paid out SSD.

SS is solvent until the year 2033 and it has it's own private fund.

 

[MU_Engineer]

I never understood this argument either. Romney couldnt say what he would close, and for some reason they think that "Closing Loopholes" is strictly a republican idea..... Its not.

Romney said that this "loophole closing" was going to bring in the same amount of tax revenue as before but allow for lower bracket rates. That suggests an across the board limiting of deductions and probably limiting of tax credits as well. That would raise the effective tax rate as you have a larger percentage of your income subject to taxation. Lowering the tax rate to compensate for a larger percentage of taxable income would then be "revenue neutral." I am guessing that Romney didn't want to say too much about it as 1) it would give Obama a chance to go on the offense against the particulars of the plan, 2) he may not have had all of the particulars figured out yet, and 3) it would have resulted in popular deductions and tax credits being limited, which would lead to 1) occurring.

The Democrats are likely against such a plan because limiting deductions and tax credits would mean that more people would be subject to having to pay taxes. Romney correctly if inelegantly stated that about half of all people do not pay federal income taxes and that quite a few of them actually get larger refunds than what was withheld due to refundable credits. A good chunk of that population votes Democrat and would be upset if they had to start paying taxes all of a sudden, because they feel only the "rich" should have to do so. The Republicans are for having more than only half of the country paying taxes as people paying taxes tend to be less in favor of large amounts of government spending and thus more likely to vote Republican. There is also the element of fairness in having everybody have some skin in the game. The Democrats also dislike limiting deductions and credits as it would decrease the social engineering and giveaways that the tax code is increasingly being used to accomplish. The Democrats do far more of the social engineering with the tax code than the Republicans and the Republicans would like to take this power away from the Democrats. Many Republicans are also against the idea of government social engineering in the first place.

Personally I am in favor of a flat tax. It is the most logical and most efficient way to collect revenue- subtract a standard exemption from your gross income and then everybody pays the same percentage on that. Can't get any simpler or more equitable than that, and you get rid of all of the perverse incentives and moral hazards in our current tax code. The Republican proposals to limit deductions are good as it moves the tax code closer (albeit only a tiny step closer) to the flat tax method.

SS is solvent until the year 2033 and it has it's own private fund.

Social Security is not its own private fund. What actually happens is an accounting trick that would make Arthur Andersen proud. The payroll taxes collected for Social Security get immediately used to pay for Social Security benefits for current beneficiaries. If anything is left over, the federal government takes it and puts it into general revenue. They however give the Social Security Administration an IOU in the form of a T-bill when Social Security revenues exceed expenditures like they have from the program inception up until the past couple of years. The SSA has been paying out more in benefits during the past couple of years than it has been taking in, so it calls in the IOUs from the feds and the difference between SS revenue and expenditures comes out of general revenue. There are quite a few IOUs from the feds left in the SSA which is why you hear people say SS is "solvent until the year XXXX." However those T-bill IOUs are not actual money, they are debt. The government lent itself money and claims it as an asset instead of as debt. That's trying to make something from nothing and one of a long reasons why the federal government is in much worse shape WRT debt than the federal government is letting on.

 

[JAYDEEJOHN]

Announce the loopholes before an election, you wont be elected.
Similar to calling the ACA anything other than what it is, a tax.

Announcing such things ahead of time would shift markets, alot.
It will anyways, but it has to be done quickly, so no one wins more than others, like insider trading

 

[riser]

If tax reform could be covered in a single debate... hah

 

[gamerk316]

For reference, simply removing the upper limit on the payroll tax (which funds SS) would make the program solvent for the next century or so (according to CBO estimates).

Alternatively, you could also increase revenue into the pot by having more eligible workers. Fixing the immigration system would accomplish that.

Personally I am in favor of a flat tax. It is the most logical and most efficient way to collect revenue- subtract a standard exemption from your gross income and then everybody pays the same percentage on that. Can't get any simpler or more equitable than that, and you get rid of all of the perverse incentives and moral hazards in our current tax code.

Yes, lets tax the guy making $10k a year at 10%. Then complain when the costs of Medicare, Medicade, and just about every other Federal aid program skyrocket as a result (probably by more then the extra revenue you bring in). Taking money away from the lower/middle classes is economic idiocy at its finest.

Lets call a Flat Tax for what it is: A tax hike on 90% of the country, and a tax cut for the other 10%.

The only true flat tax would be an across the board sales tax on non-essential items. Even that is unfair though (favors established business over startups, for instance).

The problem is they are calling legal deductions 'loopholes'. Pay attention to the language. They use the term 'loophole' for a reason. To someone who has a mortgage, its a deduction. To someone who doens't, it's a 'loophole'.

Hence why at no point have any of the said loopholes been named during negotiated. Because theres no way to close $800 Billion worth of them without cutting some really popular ones. And that would be political suicide.

 

[riser]

You can't elminate the SS upper limit unless you want to start paying them SS on that income as well. The upper limit was created to be truly fair.. and now you're arguing to make the system unfair by removing it.. do you propose to pay more on SS then? Or maintain same levels and make the system unfair as it was originally made a fair system..

 

[chunkymonster]

Wasn't Social Security an option as well? You could pay into it or not?

Social Security was never an optional program. People working jobs that are covered by SS laws are subject to the FICA payroll tax. The payroll tax was never voluntary, it is required.

The notion that SS was voluntary comes from the fact that not all jobs, only about half, at the start of the program were covered by the SS law and required to pay FICA taxes. So, a person could have worked in a job not covered by the SS law and not pay the FICA tax; in that sense it was "voluntary" in that a person could choose a job not covered by the SS law. However, as more jobs became covered by subsequent laws, which is almost ALL jobs, the idea of SS being "voluntary" was legislated out.

There area few exceptions to the jobs covered by SS laws, generally involving persons working for state/local governments. Under certain conditions, employees of state/local governments have been able to voluntarily choose to have their employment covered or not covered.

 

[chunkymonster]

I'm kinda of leaning towards getting rid of all deductions and lower the rates. That seems to be the most fair among all income brackets.

When you research countries that have adopted a flat tax, the results and realized benefits are hard to argue against. Heck, when former soviet bloc countries dump the progressive tax (currently used in America) for a flat tax, it speaks volumes about how they view their national budget and providing societal benefits.

Most of the argument against a flat tax come from big government types not wanting to lose the stranglehold the current tax code has on the people. Progressives also argue that a flat tax would hurt lower income people, but considering the rhetoric about everyone "paying their fair share" and considering 47% of the population (mostly lower income families) has a 0% federal tax liability, the narrative of a flat tax hurting lower income families seems be an exercise in class warfare more than ensuring tax liability fairness.

I am all for a federal flat tax...

 

[musical marv]

The problem is they are calling legal deductions 'loopholes'. Pay attention to the language. They use the term 'loophole' for a reason. To someone who has a mortgage, its a deduction. To someone who doens't, it's a 'loophole'.

It is a matter of semantics and political will on both sides.What ever is good for the other person involved.

 

[riser]

@Chunky:

Reality of is, States have a flat tax and local sales taxes are generally flat. It works well. In fact, here in Tennessee we pay around 9.25% to 9.50%. The benefit of that is more money stays local instead of going up to the Feds.

 

[chunkymonster]

@Chunky:

Reality of is, States have a flat tax and local sales taxes are generally flat. It works well. In fact, here in Tennessee we pay around 9.25% to 9.50%. The benefit of that is more money stays local instead of going up to the Feds.

Sad to say the Socialist Republic of New Jersey maintains progressive income tax, broken into six brackets, with the highest rate at 8.97% kicking in at $500,000; which compared to NY, CA, and CT isn't that bad.

I'd much rather pay a higher rate at the State level and a lower rate at the federal level, knowing my money would stay local, much like TN, rather than like it is now, with NJ paying the Feds only to receive bloc grants to maintain social programs.

A comparison of NJ to some flat tax States has shown that high income earners shoulder less of a tax burden that the same income levels in flat tax States, which IMO leads to the corruption that NJ has become infamous for; same concept with a progressive federal tax.

 

[riser]

We don't have a state tax in Tennessee. Only federal and sale tax. Property taxes on a $150,000 house are around $600 a year.

 

[JAYDEEJOHN]

What compels local pols to go national?

 

[riser]

Money.

 

[JAYDEEJOHN]

That and power
They want it for their states.
The compulsion is brought about by not being able to either actually having the monies needed within their state, or, its being usurped by the feds, and they have to go there to get it.
Sounds a tad upside down to me

 

[JAYDEEJOHN]

This gets us to the point of excess.
If it were done the right way, excesses wouldnt be that great, states would retain their rights and monies, and the feds would be much smaller in reach.
The excesses would then have to more wisely used, where the needs are to be meant, and frivolous attempts at spending it would be frowned upon

Just a thought.....

 

[riser]

We are too much the minority now to make that change. Let them drink at the hydrant, it will eventually run out. The minority will continue on and get through it.

 

[musical marv]

Money.

So it is money today that buy our politicians and elections. Pretty sad indeed I must say.

 

[MU_Engineer]

When you research countries that have adopted a flat tax, the results and realized benefits are hard to argue against. Heck, when former soviet bloc countries dump the progressive tax (currently used in America) for a flat tax, it speaks volumes about how they view their national budget and providing societal benefits.

Most of the argument against a flat tax come from big government types not wanting to lose the stranglehold the current tax code has on the people. Progressives also argue that a flat tax would hurt lower income people, but considering the rhetoric about everyone "paying their fair share" and considering 47% of the population (mostly lower income families) has a 0% federal tax liability, the narrative of a flat tax hurting lower income families seems be an exercise in class warfare more than ensuring tax liability fairness.

I am all for a federal flat tax...

I can see two main reasons for continuing to have the current tax structure:

1. The multiple deductions and exemptions allow for the politicians to exercise a lot of power in that they get to determine what gets the special treatment and what does not.

2. The progressive tax rate allows for the statists to tax individuals who are unlikely to vote for them and give the money to people who are more likely to vote for them in an attempt to cement themselves in power. Plus the whole class warfare rhetoric makes the recipients of the pilfered money feel good about it and further help cement the statists in power.

Simply taxing income on a percentage basis to provide revenue to the government accomplishes none of those goals and actually is harmful to most politicians and especially the statist ones. Increased government size and spending would cause an increase in taxes on everybody- and thus provides a significant negative incentive to grow the government and thus limiting the government's power and influence. That is why I bet we'll never see a flat tax with the current government we have. Also, a flat tax would simply be too high to actually pay for the amount of spending we have. I estimate about 50% of all income over $15,000 would be required to balance the budget. Not too many people would sign up for that, especially not people who now pay little to nothing in taxes.

This gets us to the point of excess.
If it were done the right way, excesses wouldnt be that great, states would retain their rights and monies, and the feds would be much smaller in reach.
The excesses would then have to more wisely used, where the needs are to be meant, and frivolous attempts at spending it would be frowned upon

Just a thought.....

What you are describing is how the nation was initially set up. The 16th Amendment had to be passed to allow the government to levy the income tax as the Constitution did not allow the federal government to tax citizens of the various states and then put the money into general revenue. The tax money obtained from income taxes would have been required to be returned to the states. The income tax was started under our first socialist president, Woodrow Wilson, and significantly expanded upon by FDR. There are various reasons why this was done, one of which was because the federal government wanted to be able to use the supremacy clause of the Constitution to force states that didn't want to fall in line with what the White House and Congress thought to have to do so. This came again to a head in the 1960s with the states' rights movement when some states tried to fight LBJ's Great Society and some of the civil rights legislation. The idea of states having any rights retained to them by the 10th Amendment was pretty well killed by the late 1960s and any attempt to bring the topic back up always gets met with accusations of racism by the statists, even though the issues being fought over now don't have anything to do with race relations.

 

[gamerk316]

I'm kinda of leaning towards getting rid of all deductions and lower the rates. That seems to be the most fair among all income brackets.

Again, I think thats the proper course as well, but it will NEVER happen because its too politically unpopular.

 

[gamerk316]

You can't elminate the SS upper limit unless you want to start paying them SS on that income as well. The upper limit was created to be truly fair.. and now you're arguing to make the system unfair by removing it.. do you propose to pay more on SS then? Or maintain same levels and make the system unfair as it was originally made a fair system..

So wait, if you make < ~100k, you pay payroll tax on 100% of your wages. If you make more then that, your tax load drops significantly. How is THAT fair? Its a walking tax loophole.

If the payroll tax is 2%, make it apply to ALL wages, not just the first $100k or so. You fix SS's fundunding shortfall instantly, without increasing taxes on those making less then $100k or so. Thats about as fair as you can possibly get.

 

[gamerk316]

To me, taxing one's earned income is immoral. The government should tax commerce, and economic activity, not someones labor.

Labor is a form of commerce and economic activity. Income taxes work in principle when the code isn't slanted to benefit the few.

@Chunky:

Reality of is, States have a flat tax and local sales taxes are generally flat. It works well. In fact, here in Tennessee we pay around 9.25% to 9.50%. The benefit of that is more money stays local instead of going up to the Feds.

A sales tax has two major problems:

1: VERY unfriendly to new business, especially when there are large startup costs.
2: Like the Income Tax, it is not particularly recession tolerant (revenue drops significantly if Unemployment rises or economic activity (wage increases) stall)

Hence why most states also have property taxes, which (current recession aside) tend to be more recession tolerant then either Income or Sales taxes.

Sad to say the Socialist Republic of New Jersey maintains progressive income tax, broken into six brackets, with the highest rate at 8.97% kicking in at $500,000; which compared to NY, CA, and CT isn't that bad.

But keep in mind, NJ gets FAR less back in service compared to states like NY, CA, or CT. To me, taxation is a question of how much I pay versus how much I get back.

Sadly, the majority of the populace forgets that second part.

I'd much rather pay a higher rate at the State level and a lower rate at the federal level, knowing my money would stay local, much like TN, rather than like it is now, with NJ paying the Feds only to receive bloc grants to maintain social programs.

Just because its local doesn't mean it will be spent well. You think Long Island or Update NY sees as much investment as it pays in taxes?

I can see two main reasons for continuing to have the current tax structure:

1. The multiple deductions and exemptions allow for the politicians to exercise a lot of power in that they get to determine what gets the special treatment and what does not.

Basically, yes. You can also try and drive economic activity by giving a deduction. We WANT people to own houses, so we give a nice deduction. We WANT people to go to college, so we give a deduction.

Problem is, before long, you have deductions for just about everything, and the system breaks down.

2. The progressive tax rate allows for the statists to tax individuals who are unlikely to vote for them and give the money to people who are more likely to vote for them in an attempt to cement themselves in power. Plus the whole class warfare rhetoric makes the recipients of the pilfered money feel good about it and further help cement the statists in power.

Simply taxing income on a percentage basis to provide revenue to the government accomplishes none of those goals and actually is harmful to most politicians and especially the statist ones. Increased government size and spending would cause an increase in taxes on everybody- and thus provides a significant negative incentive to grow the government and thus limiting the government's power and influence. That is why I bet we'll never see a flat tax with the current government we have. Also, a flat tax would simply be too high to actually pay for the amount of spending we have. I estimate about 50% of all income over $15,000 would be required to balance the budget. Not too many people would sign up for that, especially not people who now pay little to nothing in taxes.

Hey, someone who actually noticed that a flat tax would tank revenue and raise the deficit. Yay for basic math!

What you are describing is how the nation was initially set up. The 16th Amendment had to be passed to allow the government to levy the income tax as the Constitution did not allow the federal government to tax citizens of the various states and then put the money into general revenue. The tax money obtained from income taxes would have been required to be returned to the states. The income tax was started under our first socialist president, Woodrow Wilson, and significantly expanded upon by FDR. There are various reasons why this was done, one of which was because the federal government wanted to be able to use the supremacy clause of the Constitution to force states that didn't want to fall in line with what the White House and Congress thought to have to do so. This came again to a head in the 1960s with the states' rights movement when some states tried to fight LBJ's Great Society and some of the civil rights legislation. The idea of states having any rights retained to them by the 10th Amendment was pretty well killed by the late 1960s and any attempt to bring the topic back up always gets met with accusations of racism by the statists, even though the issues being fought over now don't have anything to do with race relations.

1: 2/3 of the state legislators passed hte 16th amendment, because a consistent revenue stream was needed. The Pollok decision ruled that an Income Tax was an unappointed direct tax (which would require the tax rate to be based on the states population; obviously not politically possible), and thus unconstitutional, hence why an amendment was needed in the first place. All the 16th amendment does is make it so direct taxes do not have to be levied based on the states population. The power to levy such a tax has always been a power of congress.

Secondly, it was Taft, not Wilson, who first proposed the amendment. So please, don't blame Democrats; it was a business friendly REPUBLICAN who pushed the amendment forward. (Fun fact: The first three states to ratify were Alabama, Kentucky, and South Carolina. Conservatives LOVED the idea of a tax based on Income.)

http://en.wikipedia.org/wiki/16th_ammendment

Social Security was never an optional program. People working jobs that are covered by SS laws are subject to the FICA payroll tax. The payroll tax was never voluntary, it is required.

Technically, while the payroll tax is mandatory, participation in Social Security is not (hence why the SC ruled the program legal).

It should be noted: The Supreme Court has NEVER ruled on whether the payroll tax itself is legal. Though prior rulings (specifically, the ACA ruling) would point that it probably would be.