From the Wall Street Journal today ($): “Administration aides yesterday also didn’t rule out expanding the amount of wages subject to the payroll tax…. The administration is aiming to require people reaching retirement age to use their account assets to buy annuities…. Only the assets above and beyond that level could be passed on to heirs or withdrawn… it would push back the start date to 2009, when Mr. Bush is scheduled to leave office.”
And this: “the administration has left the door open to raising the cap on the amount of wages taxed, now set at $90,000. Repealing the cap altogether — as with Medicare’s smaller payroll tax — would close Social Security’s projected 75-year funding gap.”
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Thanks for pointing this out, Jeff! When can we expect the “beltway” libertarians to start expressing reservations about the Bush plan? It would seem that there is no amount of GOP banana oil the CATO/Reason crowd won’t swallow. Yes, I know, it’s still a “step in the right direction.” And I’m next in line for the British throne! The Queen told me herself!
The second article has been posted in the newsgroups and is available without subscription here.
“the administration has left the door open to raising the cap on the amount of wages taxed, now set at $90,000. Repealing the cap altogether — as with Medicare’s smaller payroll tax — would close Social Security’s projected 75-year funding gap.”
If you try to lay a big tax increase on the rich, how likely are you to collect it? Won’t this cause an even greater disappearance of income into tax shelters? Or are they hoping to replenish the supply of high-income earners through bracket creep?
This tiny bite of beltway libertarian opinion is included at the end of the article, but it’s unclear whether they prefer tax increases or borrowing as a stopgap:
Steve Moore, president of the Free Enterprise Fund that supports private accounts, said of the president’s proposal, “It’s probably not going to happen in 2005.”
Ohhh Henry aked:
If you try to lay a big tax increase on the rich, how likely are you to collect it? Won’t this cause an even greater disappearance of income into tax shelters?
Isn’t payroll tax impossible to game, the same way income tax is gamed? The only way to get out of it would be to shift compensation into a barter economy. “Mr. Trump, you are now paid one Waikiki condo per week, in lieu of a dollar wage.”
Some of us “radical” (read: principled) libertarians are sometimes accused of refusing to compromise, refusing to accept incremental movements toward liberty; that we would only accept a magical “push of the button”. Of course, this is not true. I want the income tax abolished, but I would view a reduction in the marginal tax rates as an unambiguous improvement by libertarian standards.
The problem lies in reforms that do not clearly and unambiguosly improve the situation, however minutely; but that might even make things worse, at least for some people. For example, moving to a “flat tax” of 20% (with no deductions at all) would be a good thing for me, and maybe even “overall” (whatever that means), but it would amount to a punitive tax increase on people making, say, $25K a year, who pay almost no income tax now. Such a reform would decrease rights violations for some, and increase it for others.
Likewise, talk about shifting from income to VAT or sales tax is dangerous; the problem is not the form, but the level. A sales tax would not replace the income tax; it would add to it. The voucher system is problematic not because it is not a whole solution, but because it is not even moving in the direction of more liberty; it would actually expand the number of education welfare recipients, and further increase the state’s control over currently private schools.
Similarly, one significant problem with the proposed social security reform is not that it does not go far enough. If it made an incremental, unambiguous improvement in terms of liberty and rights, I would favor it.
But both the current system and the proposed new system are going to be terrible. I can’t really rely on receiving benefits from the system, whether it’s reformed or not; and even if I got to invest a paltry 4% of my income up to the new FICA income cap (currently about $90K but likely to increase, as noted below), that would only be at most about $6-7K a year–in a conservative, government limited set of investments. That’s just noise.
However, the the new plan will almost certainly result in an increase in the limit of income subject to FICA. I.e., my taxes will go from 6.2% of $90K to 6.2% of say, $130K at least (for now–probably unlimited thereafter). This means at least an additional $2400 or so of taxes for me, and another $2400K for my employer (which in the end, acts as a tax since it reduces wages). I.e., the cost to anyone earning decent money will be roughly $3-4K a year in extra taxes, just for the privilege of putting $7K of my own money into a government-controlled investment account (you can already put $15K into 401k which has more flexibility, and up to about $40K into a SEP-IRA if you have a business with enough profit, so the $7K in a much less attractive account is not that great a deal).
I would rather they just leave the current FICA tax in place, with no increase; means-test social security benefits, and label it what it is: welfare; and increase the limits on how much you can put into a 401k pre-tax. That way at least the dreadful tax would not increase as much and working people would stop stupidly relying on SS benefits being there when they retire.
“Isn’t payroll tax impossible to game, the same way income tax is gamed? The only way to get out of it would be to shift compensation into a barter economy. “Mr. Trump, you are now paid one Waikiki condo per week, in lieu of a dollar wage.”
I think I misunderstood the cap – at first I thought that the tax was capped after it had collected $90k out of one’s income, but apparently it means that the first $90k of income is subject to the SS tax, income above that amount is not. In that case, the average person who would be affected by the removal of the cap is indeed a captive of payroll tax and has no way to avoid it.
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