Is Social Security regressive?

[Potus]

Social Security is regressive because:
 
      1. It limits job availability for high-debt college graduates.
      2. It's funded in part by a regressive payroll tax on workers.
      3. It limits job prospects with an employment tax on businesses.
      4. The payroll tax creates an incentive to pay in non-taxable benefits.
      5. The most obvious is higher benefits for higher earners.

[Antonio the Sixth]

Kinda, yeah. It could be set up in a much more egalitarian way, but ultimately it's still better than nothing.

[AggregateDemand]

You didn't even mention the worst part. A senior citizen can apply for a job with an income subsidy and health insurance, which is a kick in the nuts to the young people who are paying for it.

But we should definitely not tax away social security benefits for people who are already socially secure.

[Potus]

You didn't even mention the worst part. A senior citizen can apply for a job with an income subsidy and health insurance, which is a kick in the nuts to the young people who are paying for it.

But we should definitely not tax away social security benefits for people who are already socially secure.

I'm a fan of whole-system reform. Mandatory savings in an investment account, with a benefit floor at current social security levels. Something similar to Chile. This would encourage earlier retirement, which improves employment prospects for young people. It also increases benefits for basically everyone. Rewards work of all kinds for everyone.

Social security reinforces the notion that retirement is related to age rather than means.

[Marokai Backbeat]

Viewed from a broader perspective it's sort of surprising when you lay all this out that Social Security isn't particularly well liked from a lot of Republicans. It's funded through regressive taxation, directly scales its benefits with the higher-earning, and only exists to support the very old. Were I a right-winger I don't think I'd have much to complain about.

[DC Al Fine]

One thing to consider is that while the taxation is regressive, the benefits are paid out progressively. That said, I still think the plan is regressive overall.

I think a better idea is the Canadian system which combines a nearly universal pension of about $550/mth, with income supports for the poor and a smaller workplace funded pension scheme.

[Simfan34]

It should be replaced with a fixed-percentage mandatory contribution, from both employees and employers, to an individual savings account, with predetermined target dollar levels of contributions, with some of the surplus being transferred to accounts of those whose contributions do not meet the target minimum. Ideally Medicare would also be rolled up into this system and eventually health insurance as well. The money would be used to buy infrastructure bonds and the like, aiming for a total annual return of 3-4%

So the idea is that $7,500 is the target amount, and if I have an income of $35,000 and the contribution is set at 20%, I would contribute $7,000. The $500 shortfall would be covered by transfers from accounts with large surpluses. This is mandatory, yes, but Social Security doesn't cover most retirement expenses and people have proven bad at saving for retirement. With individual accounts it would shift perceptions away from it being a tax. The inspiration for this scheme, of course, comes from Singapore's Central Provident Fund.

[they don't love you like i love you]

So you increase the contribution rate for this very middle class person from 6.2% to 20%? That's even more regressive. Especially since if the goal is $7,500 then someone making $150k actually would pay less as a percentage under this system.

[DC Al Fine]

So you increase the contribution rate for this very middle class person from 6.2% to 20%? That's even more regressive. Especially since if the goal is $7,500 then someone making $150k actually would pay less as a percentage under this system.

You're misunderstanding two things.

1) Assuming the standard split, social security tax would be raised from 6.2% each to 10% each.
2) The payroll taxes of the rich would be used to top up the accounts of the poor. A chunk of Mr.$150k's payroll taxes would be deposited in the account of Mrs. $30k.

[Simfan34]

So you increase the contribution rate for this very middle class person from 6.2% to 20%? That's even more regressive. Especially since if the goal is $7,500 then someone making $150k actually would pay less as a percentage under this system.

You're misunderstanding two things.

1) Assuming the standard split, social security tax would be raised from 6.2% each to 10% each.
2) The payroll taxes of the rich would be used to top up the accounts of the poor. A chunk of Mr.$150k's payroll taxes would be deposited in the account of Mrs. $30k.

Yes on number 2. 20% was an arbitrary number, but whatever it was would include Medicare and certainly be higher that present contributions, at a level that would be sufficent for most (80%+ or so) people's retirements.

This overlooks, however, the crucial point that this is not intended to be a tax.

[DC Al Fine]

It should be replaced with a fixed-percentage mandatory contribution, from both employees and employers, to an individual savings account, with predetermined target dollar levels of contributions, with some of the surplus being transferred to accounts of those whose contributions do not meet the target minimum. Ideally Medicare would also be rolled up into this system and eventually health insurance as well. The money would be used to buy infrastructure bonds and the like, aiming for a total annual return of 3-4%

So the idea is that $7,500 is the target amount, and if I have an income of $35,000 and the contribution is set at 20%, I would contribute $7,000. The $500 shortfall would be covered by transfers from accounts with large surpluses. This is mandatory, yes, but Social Security doesn't cover most retirement expenses and people have proven bad at saving for retirement. With individual accounts it would shift perceptions away from it being a tax. The inspiration for this scheme, of course, comes from Singapore's Central Provident Fund.

I have to commend Simfan for acknowledging that any significant expansion in the pension system will require a large tax hike in some form.

That said I think his plan goes too far in the other direction. Expenses can drop drastically in late middle age in retirement. Retirees have no commuting costs, no business clothes/lunches, no payroll taxes and often a paid off home. Under such conditions it doesn't take a lot to live comfortably.

A person making $35k from 25-65, investing $7.5k in a balanced could actually buy an indexed pension with significantly more take home pay in retirement than when they were working.

E.g. A single man in Texas starts work at age 25 with $35k income.

He invests $7500 per year in a balanced fund until retirement at 65. He never gets a raise beyond inflation. The savings earn about 4% after inflation. Resulting in net assets of about $740,000. According to this website, he can buy an indexed pension of about $41,700 per year.

Such savings requirements are far more than necessary for a typical worker.

[Simfan34]

Well, again I don't know the particular percentages at present. And ultimately it would cover more than just pensions.

The problem is, however, that even though a person could do that and be well off, the fact is they usually will not. This will have to be kept on mind.

The fact is that in such a program will have fairly low returns due to its sheer size- it can't really go on to the market. Even with its dual function, actually, this may prove to be its Achilles' heel. Particular if it was barred from buying too many Treasurys. I'm not sure how the money could be invested, really- maybe some indirect passive index fund of sorts.

[jaichind]

There is another aspect about SS which makes it more progressive.  It has to do with how SS benefits are taxed.  Depending on where your AGI falls in a series of income bands, 0% or 50% of 85% of one's SS benefits will be treated as and taxed as income.   For my own retirement planning purposes I pretty much plan on only getting around 60% of the benefits my DW and I have coming to us and also assume 100% of it will be taxed.

[© tweed]

just kill the earnings cap and it completely overwhelms all these other issues.  they'd be taking in a surplus, which they could then "loan" to the US Govt to make the numbers looks even better.

[CH86]

The problem with social security as currently constitutes is that without the system being modified, it will effect a massive transfer of wealth from Americans born after the late 1950s (who were much harder hit by the recession and are just scraping by) to those born before the late 50s (who for the most part have stable incomes and pensions). It would facilitate a transfer of wealth from the poor to fund the lifestyles of the wealthy.

[Amenhotep Bakari-Sellers]

Yes, it caps the first 75k of income, when there is a Dem Congress and prez, cap will be raised to 100k of income to maintain viability.

Whereas income tax, based on income

[Zezano]

Social Security is not bad in its own right since most people don't have the responsibility and self dicipline to save for retirement but there should at least be a lock box so the government cannot loot the funds.

[Torie]

One thing to consider is that while the taxation is regressive, the benefits are paid out progressively. That said, I still think the plan is regressive overall.

I think a better idea is the Canadian system which combines a nearly universal pension of about $550/mth, with income supports for the poor and a smaller workplace funded pension scheme.

The progressivity of the payments out, makes the system progressive. The payments in are a "flat tax" as it were. If the cap on income were lifted as to payments in, without any change in payments out, the system would become very progressive.