Make the first $20K of income free from payroll taxes

[GOTV]

I heard Robert Reich make that suggestion earlier in the week and I don't understand why there's not already a bill to that effect. Or could the president do that by executive order? It seems like such a great idea to get money into the hands of those that would spend it. More spending means more jobs.

They could even offset the losses by simultaneously raising the cap by $20K. People with $110K or more of income would see no change but most people would see a boost in pay.

[Indydem]

1. NO

If you allow wages to go without payroll taxes, and yet allow them to qualify for social security, it is WELFARE and will lead to the destruction of the Social Security system.

Those who earn it, receive it. That is the iron-clad defense of Social Security which cannot be defeated.

[exboyfil]

2. For those making less than about $50K/yr

it is welfare because of the way the benefits are structured. The first $10K/yr or so gets back a disproportionate share of their contributions, this slides down in the middle bracket finally reaching a balanced point somewhere during that income level, and those in the final bracket subsidize the system up to $105K. Those above $105K get to walk away from their obligation to support the lower income workers on that income over $105k (the best argument for killing the cap).

Raising the cap on the next $20K will not work mathematically as proposed by the first poster. Very few of those folks actually exist when compared to the massive numbers contributing the first $20K.

My proposal is to eliminate the cap (reduced withholding to reflect these dollars would not contribute to benefit formula), go to a pay as you go (draw down Trust Fund once the situation gets better), make a commitment at some level than withholdings will never increase beyond a certain level to future workers, and have a sliding scale reduction in benefits if current workers can't cover the expenses of the retirees (protecting the first $10K for example). Everybody has skin in the game under this approach. An elimination of the cap would probably reduce the withholding rate under pay as you go (thus achieving some of the effect the original poster was seeking).

As far as welfare, thanks to the budget deal which has eliminated a portion of the payroll tax to be replaced with general revenue, we have all entered the land of welfare.

[JustAnotherGen]

4. I'm in agreement

Those above $105K get to walk away from their obligation to support the lower income workers on that income over $105k (the best argument for killing the cap).

Stated so on another thread today. It's actually 106.5. Starting June 22nd - I won't pay in anything additional to SS. Remove this -and either shore up SS or use it to pay down the debt.

[shraby]

5. Social security isn't a payroll tax..it's premiums on the social security insurance program.

[customerserviceguy]

7. We've already gone there

with the Earned Income Credit. Even with no kids, if you're single and between 25 and 65, you can get up to $464 (from the 2011 IRS EIC tables). You get that much if your earned income is between $6,100 and $7,600 as a single person (different amounts apply to married couples).

At $7,600, that $464 is a bit more than six percent, and at $6,100, it works out to over seven and a half percent. Yes, not as much as the employee's share of FICA and Medicare taxes, but as I said in the title of my post, we've already taken a step in that direction.

It makes at least as much sense as a payroll tax 'holiday' that gives way more to people earning near the FICA cap than the folks making minimum wage get.

[sofa king]

20. There is a reason for that, though.

One reason why is because poor people are disproportionately affected by flat taxes such as those on gasoline. Another is that the EIC saves money by kicking people out of eligibility for programs they would qualify for if their full tax burden happened to toss them into poverty.

As a hypothetical example of the disproportionate tax issue, let's postulate that taxes account for half of the price of gasoline and say that Alice makes $10,000 a year and buys 1000 dollars of gasoline to run through her SUV. She paid five percent of her total income in gasoline taxes.

Betty, on the other hand, makes a million dollars a year. She buys 1000 dollars of gasoline to run through her SUV. She paid 0.05 percent of her income in gasoline taxes. She will not drive a hundred times farther than Alice. She will not create a hundred jobs so that a hundred Alices are on the road. But she will also never fall into poverty just by driving to work.

Same goes for baby supplies. Same goes for food. Same goes for entertainment. If rich people think taxes shackle them, they ought to try being poor for awhile, and see just how much more of their day's work is devoted to paying the taxes rich people can afford to ignore.

In 2010, not being able to utilize the EIC would have placed an additional 5 million people below the poverty line. Paying their full tax burden would have put them into poverty. Actual poverty, not "I had to pay my taxes and now I can't afford my greens fees." (For those of you who are evil and merely lurking, think of poverty as a tax on you, and raising people out of poverty is a way to keep them dirt poor without actually providing them with any government help.)

That's why there is an earned income credit.

[customerserviceguy]

21. All true

And that's why I think the OP's post was a good idea. My point is that we've already taken a step in that direction, continuing in that path by exempting the first $20K of income from payroll taxes does not automatically turn SS into welfare any more than it is right now.

[Trillo]

10. It would seem to be a sort of "mirror image" to the existing cap for wealthy folks.

If the 1% don't need to contribute above the designated SS cap, then there's a certain symmetry to giving the poorest a similar exemption.

[Indydem]

11. There is a cap to SS benefits.

If you are going to deny receiving benefits to those who make less than $20k, then it's not welfare.

[girl gone mad]

19. This "iron-clad defense" is not holding up so well.

SS is under constant attack from critics who claim it's going to run out of money. Even Obama was willing to make a Grand Bargain, offering up cuts to SS in the name of "deficit reduction".

So much for iron-clad. Drop the trust fund charade, pay SS from the general fund and the next time a politician decides to gin up deficit hysteria people can see this dishonesty for what it is. After all, the Pentagon is not constantly having to defend its budget because the government is going to run out of money.

[alc]

3. and make them not qualified for social security

SS isn't welfare. It's a plan where you pay in as you earn and get it back later. Giving people SS money that didn't pay would change the program (and give opponents more arguments).

Instead, the EITC was created partly to refund payroll taxes for low-income earners. Those people still pay SS taxes and earn the benefits like everyone else. But they get a refund for the payroll taxes.

[GOTV]

12. Don't many people already get out more than they put in?

[baldguy]

15. It's high time that we remember that workers contribute more than just money to the economy.

They contribute their LABOR - and that labor is the very thing that enables the economy to function. In return for this benefit to society they provide, some workers are punished by their wealthy employers with low wages (and unwarranted low respect). Should we punish them again by reducing or eliminating their SS benefits? They are still members of our community, after all.

It's called SOCIAL and SECURITY for a reason. If we allow some people to suffer in poverty simply because they can no longer work - which is the situation SS was created to prevent - then we all are harmed.

[Lasher]

6. I'd rather see a mortgage interest tax credit for non-itemizers.

Obama broke his promise to provide one.

[customerserviceguy]

8. Disagree

The massive tax breaks given for home ownership versus renting are what pumped the housing bubble up so high in the first place.

[Lasher]

14. I don't think we are on the same page.

Pursuant to the Taxpayer Relief Act of 1997, Couples are allowed a capital gains exclusion of up to $500K when they profit from selling their home. The exclusion encourages 'flipping', which is the resale of a residence for profit. This was one factor that contributed to the subprime mortgage crisis.

What I propose is a mortgage interest credit up to a maximum of $800 for non-itemizers. This is currently available only to those who itemize, which was the case during the runup to the Great Recession. My proposal therefore could not have been a cause of the housing bubble. Please review the article I linked upthread if you are interested in more details.

[customerserviceguy]

17. You are correct in identifying the 1997 tax break

as a major contributor to the bubble. My point is that the tax-favored status of residential real estate has involved a large number of breaks that pumped air into the bubble. Deductability of mortgage interest fueled high interest rates for borrowing thirty years ago, and after rates came down, this tax break still led to massive overborrowing and using one's house as an ATM, which wiped out equity without there being a bust.

Look at the most recent first-time homebuyers credit passed by both Bush and Obama. That break spawned fraud and was absolutely ineffective at shoring up the housing market. I believe that it's time to make the choice to buy or rent a purely personal one that the government is absolutely neutral on.

[Lasher]

18. There was no housing bubble 30 years ago

That was when we had a mortgage interest tax deduction similar to the one I propose, as you seem aware. But there was no massive overborrowing and house flipping back then, so I wonder what led you to believe it promoted such behavior during this decade. It is true that the mortgage interest deduction still exists but it has undergone an important change: It can now only be claimed by taxpayers who itemize deductions, who usually have higher incomes. This change makes it even less likely that this deduction had any meaningful influence on the subprime mortgage crisis.

[LiberalFighter]

9. Reich is totally wrong on this.

If you want to circulate money more. Those with higher income need to be taxed at higher rates. Then those at lower incomes would have more of their income not taxed and/or tax at lower rates.

When the rich have lower tax rates that means that income in the lower tax brackets are taxed at a higher rate. Sometimes it requires expanding the amount of income that is taxed at one rate vs a different rate. The lower income earners are giving their income to the government so the much higher income earners can have lower taxes at our expense. So the very rich can hoard their money.

Income should not be exempt from Payroll taxes (Social Security & Medicare). Rather the caps should be eliminated and also imposed on dividends and capital gains where the the total exceeds $100,000 a year.

And no. The President cannot use executive orders for this.

[GOTV]

13. I like your idea too but it sounds undoable this year.

[baldguy]

16. Make it $50k. And eliminate the cap.

It's no secret that our tax structure is set up to punish anyone who actually works, and rewards wealthy parasites who contribute nothing. Anything that can be done to change that can only be good.