4 ms·

Don't forget about FICA, which is 7.65% that is only taken out of wages (not investment earnings), and only paid on the first ~$140K of wages. I was astonished

by _qulr 6y ago

Don't forget about FICA, which is 7.65% that is only taken out of wages (not investment earnings), and only paid on the first ~$140K of wages. I was astonished to discover earlier in my career, after a pay raise, that I got to stop paying FICA at a certain point. I didn't even realize there was an upper limit. It's a tax that only applies to "lower" income workers. Highly regressive. Also, US income taxes are only nominally progressive. There are so many loopholes that very wealthy people (most infamously the POTUS) can end up paying no taxes whatsoever. Tax dodging is a science and an art. Didn't Warren Buffett say he paid a lower rate than his secretary?

seibelj 6y ago
That’s because social security isn’t a “tax” - it’s funding pensions, and you pay into it now to get a pension later, which is capped at maximum payout, which is why you don’t have to pay above a salary amount because above which you won’t increase your income in retirement. However to reform social security so it can actually be maintained, I agree we should increase the limits or remove them entirely. But keep in mind social security is not seen as a tax - it’s a retirement pension. If we are going to change it so that rich people pay more and get less, we should also reform Medicare so that rich people pay for their own healthcare in retirement. Tons of old age programs give handouts to the rich - that’s not what they are for.
- Godel_unicode 6y ago
  They are absolutely not pensions, and you are not paying into it now to fund payment later. It's a tax. You pay it now to cover those taking it now, and the social contract says future generations will do the same. This is a very important distinction, so I'll repeat it. Social security in the United States is not a pension, it's just a government program. We're told it will continue, but that's only because the current government says it will. A future government could just decide to stop payments, and there would be no recourse because it's not a pension. If you live in the United States, please plan accordingly.
  - lowlevellimbo 6y ago
    You're right that it's not a pension, it's a tax, and the more one contributes the less they see in returned benefit. > A future government could just decide to stop payments A future government could just decide to go to war with Canada and the recourse for citizens would be the same.
jandrewrogers 6y ago
In the US, there is the fiction that FICA pays for your Social Security pension, somewhat proportional to your contribution, though high contributors don’t get benefits in proportion to contribution. There is a legitimate fear by the government that if it becomes viewed as just another income tax that political support for the tax will evaporate. It is really important for it to be viewed as a pension contribution of sorts, which is obviously capped by how much it pays out. If you did not limit the taxes and they explicitly became income taxes (in appearance), many upper-middle class Americans would find themselves paying upwards of 50-60% taxes on income for vanishingly few benefits. That has political ramifications that the government would rather avoid. The challenge for the US is that the taxes on the middle class are very low relative to e.g. Europe. But they cannot squeeze enough taxes from the top 20% that pay most net taxes to make up the difference.

by _qulr 6y ago

seibelj 6y ago

That’s because social security isn’t a “tax” - it’s funding pensions, and you pay into it now to get a pension later, which is capped at maximum payout, which is why you don’t have to pay above a salary amount because above which you won’t increase your income in retirement. However to reform social security so it can actually be maintained, I agree we should increase the limits or remove them entirely. But keep in mind social security is not seen as a tax - it’s a retirement pension. If we are going to change it so that rich people pay more and get less, we should also reform Medicare so that rich people pay for their own healthcare in retirement. Tons of old age programs give handouts to the rich - that’s not what they are for.

Godel_unicode 6y ago
They are absolutely not pensions, and you are not paying into it now to fund payment later. It's a tax. You pay it now to cover those taking it now, and the social contract says future generations will do the same. This is a very important distinction, so I'll repeat it. Social security in the United States is not a pension, it's just a government program. We're told it will continue, but that's only because the current government says it will. A future government could just decide to stop payments, and there would be no recourse because it's not a pension. If you live in the United States, please plan accordingly.
- lowlevellimbo 6y ago
  You're right that it's not a pension, it's a tax, and the more one contributes the less they see in returned benefit. > A future government could just decide to stop payments A future government could just decide to go to war with Canada and the recourse for citizens would be the same.

jandrewrogers 6y ago

In the US, there is the fiction that FICA pays for your Social Security pension, somewhat proportional to your contribution, though high contributors don’t get benefits in proportion to contribution. There is a legitimate fear by the government that if it becomes viewed as just another income tax that political support for the tax will evaporate. It is really important for it to be viewed as a pension contribution of sorts, which is obviously capped by how much it pays out. If you did not limit the taxes and they explicitly became income taxes (in appearance), many upper-middle class Americans would find themselves paying upwards of 50-60% taxes on income for vanishingly few benefits. That has political ramifications that the government would rather avoid. The challenge for the US is that the taxes on the middle class are very low relative to e.g. Europe. But they cannot squeeze enough taxes from the top 20% that pay most net taxes to make up the difference.