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There are two problems with SS, one fixable, one less so. The hard to fix problem is slowing population growth. SS depends on young workers to fund the payments

There are two problems with SS, one fixable, one less so. The hard to fix problem is slowing population growth. SS depends on young workers to fund the payments to retirees. But this is really only a problem if aggregate income growth declines with population growth, and it hasn't; the aggregate income of all Americans has quadrupled since 1982, the last time this shortfall occurred. The problem is that the vast majority of the income growth has been captured by a small portion of the population, who don't pay withholding taxes on it. If we had sane progressive tax policy in the US, the SS shortfall would evaporate.

rayiner 8y ago
> If we had sane progressive tax policy in the US, the SS shortfall would evaporate. Our tax policy is among the most progressive in the developed world: https://www.theatlantic.com/business/archive/2012/02/us-taxes-really-are-unusually-progressive/252917 https://www.theatlantic.com/business/archive/2012/02/us-taxe.... The real problem is that the average income earner doesn't pay enough Social Security taxes to cover what they will receive in benefits: http://www.politifact.com/truth-o-meter/article/2013/feb/01/medicare-and-social-security-what-you-paid-what-yo http://www.politifact.com/truth-o-meter/article/2013/feb/01/.... The system is set up so not only do the needy get a public subsidy, but most people do. Caps on retirement taxes are not specific to the U.S. Germany and France, for example, have similar ceilings. Germany, for example, has a 19.6% payroll tax up to $80,000. The U.S. tax is 12.4% up to $127,000.
- mikeash 8y ago
  Is our tax policy still among the most progressive if you account for the full payroll tax (not just the employee side as apparently that study does) as well as the many other federal, state, and local taxes we pay?
  - rayiner 8y ago
    Yes: https://www.washingtonpost.com/news/wonk/wp/2013/04/05/americas-taxes-are-the-most-progressive-in-the-world-its-government-is-among-the-least/?utm_term=.82d39a834534 https://www.washingtonpost.com/news/wonk/wp/2013/04/05/ameri... Looking at those additional taxes for both U.S. and Europe generally makes the U.S. even more progressive. For example, sales taxes are highly regressive. European countries rely heavily on 20-25% VAT taxes to raise revenue, while U.S. states typically have 5-10% sales taxes. The maximum rates and various caps just generally kick in much earlier. In Germany, the income tax rate is 42% for $63,000+, just a few percent below the maximum bracket of 45%.
    - mikeash 8y ago
      Thanks!
- TheLoneAdmin 8y ago
  From your link "...and turning 65 in 2010 would have paid $722,000 into Social Security and Medicare and can be expected to take out $966,000 in benefits." So basically, employees are giving the government a 45 year loan at zero interest. Even at just a 1.5% rate, the typical employee pays their own way.
  - traek 8y ago
    That's already accounted for in the "paid-in" figure: > (Remember, the couple didn’t literally pay out $600,000; that’s the current value of what they paid out over the years, plus an additional 2 percent they may have gotten had it been invested.) Even accounting for inflation and investment, the average worker still is paid out more from Social Security than they paid in.
    - dragonwriter 8y ago
      > Even accounting for inflation and investment, the average worker still is paid out more from Social Security than they paid in. The source cited combines “Social Security and Medicare”, it doesn't (at least in the quoted excerpt) address SS separately. These are different programs supported by different Trust Funds funded by different taxes applicable to different income and with different dynamics driving costs.
  - ams6110 8y ago
    But the government is not investing that money for the later pay out. They spend it immediately and write IOUs.
- vannevar 8y ago
  From your linked article: "Why, according to the OECD, is the US system so progressive? Not because the rich face unusually high average tax rates, but because middle-income US households face unusually low tax rates--an important point which de Rugy mentions and Chait ignores. How does the picture change if you take indirect taxation into account? That would make the US system look even more progressive, because the US doesn't rely on a flat consumption tax like most other governments. What does the tax-rate schedule tell you about progressivity? Very little, until you factor in deductions, thresholds and opportunities for avoidance. High top rates are meaningless if nobody is paying them. What happens to tax progressivity at the very top of the US income distribution--inside the top one percent, or 0.1 or 0.01 percent? Good question. When it comes to international comparisons, I don't know of any good answers..." The real point of the article is that progresssivity is hard to measure. But when so much of the income growth in the country is captured by a class that doesn't pay into the SS system, the result speaks for itself.
  - rayiner 8y ago
    No, the real point of the article is that "according to the OECD, "the US system [is] progressive." The most salient feature of the U.S. tax system is that "middle-income US households face unusually low tax rates"--i.e. the system is highly progressive. The U.S. tax system is progressive well into the top 1% of income earners (by contrast, Germany, Sweden, and Denmark have a relatively flat tax structure after about 1.5x the median income). There is a lot of focus on tax breaks for the top 0.1%, but 90% of U.S. income is earned by people outside that group, and 80% is earned by folks outside the top 1%.
    - fjsolwmv 8y ago
      What about health insurance? USA's privately funded health insurance is equivalent to flat or regressive tax, not a progressive tax.
      - rayiner 8y ago
        Half of US health care expenditures come from the government. Medicaid is funded by general tax revenues (based on highly progressive income taxes). Medicare is funded by a flat tax with no income cap. In Germany by contrast, health care is paid for with a regressive mandatory insurance premium of 15.5% on income up to about $60,000.
- dragonwriter 8y ago
  > Our tax policy is among the most progressive in the developed world Not as applies to Social Security, which has a dedicated funding stream independent of general revenue, consisting entirely of a flat tax on labor income below a certain level and no tax above that level which constitutes a two-timer regressive tax on labor income made even more regressive on total income because the high end of the total income distribution consists largely of people whose income comes largely from capital rather than labor income.
  - rayiner 8y ago
    A flat tax on labor income, with a cap, is a typical model for Social Security in Europe. E.g. France, Germany, etc. Ours is more progressive because the cap is generally higher.
    - dragonwriter 8y ago
      > A flat tax on labor income, with a cap, is a typical model for Social Security in Europe. Yes, and the US funding system is similar to that norm, not unusually progressive as claimed upthread.
chiefalchemist 8y ago
I said this above as well, but our latest DoD budget is $700,000,000,000. I agree with the crux of your analysis. But I also think we literally can't afford to ignore how $700 billion contributes to a multitude of our problems.
- ams6110 8y ago
  I would be the last person to say that there isn't a lot of waste in defense budgets. But you can't spend zero on defense. And the United States also defends all of NATO and a lot of Asia as well as certain other allied countries. Let's say you could somehow shave a few hundred billion out of the budget without materially impacting our defense capabilities and obligations. That's not enough to fix our bigger problems with entitlements.
  - orev 8y ago
    No one said anything about spending zero on defense (straw man). And if we can’t solve it completely in one shot, why bother at all? (false dichotomy/nirvana) 0 for 2 on your arguments there.

rayiner 8y ago

> If we had sane progressive tax policy in the US, the SS shortfall would evaporate. Our tax policy is among the most progressive in the developed world: https://www.theatlantic.com/business/archive/2012/02/us-taxes-really-are-unusually-progressive/252917 https://www.theatlantic.com/business/archive/2012/02/us-taxe.... The real problem is that the average income earner doesn't pay enough Social Security taxes to cover what they will receive in benefits: http://www.politifact.com/truth-o-meter/article/2013/feb/01/medicare-and-social-security-what-you-paid-what-yo http://www.politifact.com/truth-o-meter/article/2013/feb/01/.... The system is set up so not only do the needy get a public subsidy, but most people do. Caps on retirement taxes are not specific to the U.S. Germany and France, for example, have similar ceilings. Germany, for example, has a 19.6% payroll tax up to $80,000. The U.S. tax is 12.4% up to $127,000.

mikeash 8y ago
Is our tax policy still among the most progressive if you account for the full payroll tax (not just the employee side as apparently that study does) as well as the many other federal, state, and local taxes we pay?
- rayiner 8y ago
  Yes: https://www.washingtonpost.com/news/wonk/wp/2013/04/05/americas-taxes-are-the-most-progressive-in-the-world-its-government-is-among-the-least/?utm_term=.82d39a834534 https://www.washingtonpost.com/news/wonk/wp/2013/04/05/ameri... Looking at those additional taxes for both U.S. and Europe generally makes the U.S. even more progressive. For example, sales taxes are highly regressive. European countries rely heavily on 20-25% VAT taxes to raise revenue, while U.S. states typically have 5-10% sales taxes. The maximum rates and various caps just generally kick in much earlier. In Germany, the income tax rate is 42% for $63,000+, just a few percent below the maximum bracket of 45%.
  - mikeash 8y ago
    Thanks!
TheLoneAdmin 8y ago
From your link "...and turning 65 in 2010 would have paid $722,000 into Social Security and Medicare and can be expected to take out $966,000 in benefits." So basically, employees are giving the government a 45 year loan at zero interest. Even at just a 1.5% rate, the typical employee pays their own way.
- traek 8y ago
  That's already accounted for in the "paid-in" figure: > (Remember, the couple didn’t literally pay out $600,000; that’s the current value of what they paid out over the years, plus an additional 2 percent they may have gotten had it been invested.) Even accounting for inflation and investment, the average worker still is paid out more from Social Security than they paid in.
  - dragonwriter 8y ago
    > Even accounting for inflation and investment, the average worker still is paid out more from Social Security than they paid in. The source cited combines “Social Security and Medicare”, it doesn't (at least in the quoted excerpt) address SS separately. These are different programs supported by different Trust Funds funded by different taxes applicable to different income and with different dynamics driving costs.
- ams6110 8y ago
  But the government is not investing that money for the later pay out. They spend it immediately and write IOUs.
vannevar 8y ago
From your linked article: "Why, according to the OECD, is the US system so progressive? Not because the rich face unusually high average tax rates, but because middle-income US households face unusually low tax rates--an important point which de Rugy mentions and Chait ignores. How does the picture change if you take indirect taxation into account? That would make the US system look even more progressive, because the US doesn't rely on a flat consumption tax like most other governments. What does the tax-rate schedule tell you about progressivity? Very little, until you factor in deductions, thresholds and opportunities for avoidance. High top rates are meaningless if nobody is paying them. What happens to tax progressivity at the very top of the US income distribution--inside the top one percent, or 0.1 or 0.01 percent? Good question. When it comes to international comparisons, I don't know of any good answers..." The real point of the article is that progresssivity is hard to measure. But when so much of the income growth in the country is captured by a class that doesn't pay into the SS system, the result speaks for itself.
- rayiner 8y ago
  No, the real point of the article is that "according to the OECD, "the US system [is] progressive." The most salient feature of the U.S. tax system is that "middle-income US households face unusually low tax rates"--i.e. the system is highly progressive. The U.S. tax system is progressive well into the top 1% of income earners (by contrast, Germany, Sweden, and Denmark have a relatively flat tax structure after about 1.5x the median income). There is a lot of focus on tax breaks for the top 0.1%, but 90% of U.S. income is earned by people outside that group, and 80% is earned by folks outside the top 1%.
  - fjsolwmv 8y ago
    What about health insurance? USA's privately funded health insurance is equivalent to flat or regressive tax, not a progressive tax.
    - rayiner 8y ago
      Half of US health care expenditures come from the government. Medicaid is funded by general tax revenues (based on highly progressive income taxes). Medicare is funded by a flat tax with no income cap. In Germany by contrast, health care is paid for with a regressive mandatory insurance premium of 15.5% on income up to about $60,000.
dragonwriter 8y ago
> Our tax policy is among the most progressive in the developed world Not as applies to Social Security, which has a dedicated funding stream independent of general revenue, consisting entirely of a flat tax on labor income below a certain level and no tax above that level which constitutes a two-timer regressive tax on labor income made even more regressive on total income because the high end of the total income distribution consists largely of people whose income comes largely from capital rather than labor income.
- rayiner 8y ago
  A flat tax on labor income, with a cap, is a typical model for Social Security in Europe. E.g. France, Germany, etc. Ours is more progressive because the cap is generally higher.
  - dragonwriter 8y ago
    > A flat tax on labor income, with a cap, is a typical model for Social Security in Europe. Yes, and the US funding system is similar to that norm, not unusually progressive as claimed upthread.

chiefalchemist 8y ago

I said this above as well, but our latest DoD budget is $700,000,000,000. I agree with the crux of your analysis. But I also think we literally can't afford to ignore how $700 billion contributes to a multitude of our problems.

ams6110 8y ago
I would be the last person to say that there isn't a lot of waste in defense budgets. But you can't spend zero on defense. And the United States also defends all of NATO and a lot of Asia as well as certain other allied countries. Let's say you could somehow shave a few hundred billion out of the budget without materially impacting our defense capabilities and obligations. That's not enough to fix our bigger problems with entitlements.
- orev 8y ago
  No one said anything about spending zero on defense (straw man). And if we can’t solve it completely in one shot, why bother at all? (false dichotomy/nirvana) 0 for 2 on your arguments there.