Unformatted text preview: Social Security Tax Rates
Tax Rate Employee: 7.65% Employer: 7.65% Maximum Taxable Earnings 2000: $76,200 2001: $80,400 Selfemployed: 15.30% PS 374 (Fall 2009) Social Security -- Part Two 1 Maximum Social Security Benefit Maximum Social Security Benefit: $1,433/month, or $17,196 per year for someone turning 65 in 2000 Estimated Average Benefit in 2000: $816 PS 374 (Fall 2009) Social Security -- Part Two 2 PS 374 Figure 1 PS 374 (Fall 2009) Social Security -- Part Two 3 Possible Changes Change Retirement Age Currently 67 by 2027 If 71 by 2040, and 75 in 2075, the system would stay in balance... PS 374 (Fall 2009) Social Security -- Part Two 4 Retirement Age
Should the retirement age be increased for today's generation? A. Yes C. No
Social Security -- Part Two 5 PS 374 (Fall 2009) Change Cap on Income subject to FICA tax
Elim inatecap on wage taxe s d to support social se curity I ncre it to $150,000 ase Would e inateshortfall lim in syste m Would re ducetheshortfall by about half PS 374 (Fall 2009) Social Security -- Part Two 6 Should we raise the Cap on Income Taxed for Social Security
A. No C Ye raise but the should bea cap . s d, re E. Ye all incom should besubje to social se s e ct curity tax PS 374 (Fall 2009) Social Security -- Part Two 7 Should we raise the social security (FICA) tax?
A. Ye e s nough to solvetheproble m Ye som , but all theway s e No A. A. PS 374 (Fall 2009) Social Security -- Part Two 8 PS 374 (Fall 2009) Social Security -- Part Two 9 PS 374 (Fall 2009) Social Security -- Part Two 10 Who Bears the Risk? Society Employer Individual PS 374 (Fall 2009) Social Security -- Part Two 11 Retirement Savings Options Publicly supporte paym nts for re d d e tire S I (use to beOld AgeAssistance e S d , tc.) Food S ps tam Me dicaid S ocial S curity e PrivatePe nsion Plans run by busine s sse Pe rsonal, Tax-advantage d Re m nt S tire e avings Pe rsonal S avings
Social Security -- Part Two 12 PS 374 (Fall 2009) Retirement Savings Options Fam ily... PS 374 (Fall 2009) Social Security -- Part Two 13 Retirement Savings Options How Are Your Parents Planning for Retirement?
A. B. C. D. E. S ocial S curity e PrivatePe nsion Plans run by a busine ss Pe rsonal, Tax-advantage d S avings Pe rsonal S avings Fam ily
Social Security -- Part Two Re m nt tire e PS 374 (Fall 2009) 14 Retirement Savings Options PrivatePe nsion Plans run by busine s sse Tax-advantage Re m nt S d tire e avings Private Adm ly iniste d re Takeadvantageof inve e strate s stm nt gie BUT Tie to fortune of e ploye d s m r and inve e strate stm nt gy Back-up S trate gy? Fe r firm offe we s ring...
Social Security -- Part Two 15 PS 374 (Fall 2009) Pension Benefit Guarantee Corporation Guarantees pension benefits for employees whose pension fund has defaulted... PBGC Deficit Private Pension Funds Employer has gone bankrupt Pension fund "underfunded" Pays a portion of expected pension 2005 figures
PS 374 (Fall 2009) Airlines, Steel Industry, etc.
16 Social Security -- Part Two Retirement Savings Options Defined Benefit Plan Employee makes contributions,
Employer commits to a "defined benefit" pension Employer bears "investment risk" I ncre asingly uncom on m PS 374 (Fall 2009) Social Security -- Part Two 17 Retirement Savings Options Defined Contribution Plan Em ploye m s contributions e ake
Employer commits to a "defined contribution pension is established by the performance of pension investments Employee bears "investment risk" More common now... PS 374 (Fall 2009) Social Security -- Part Two 18 Retirement Savings Options Pe rsonal, Tax-advantage d Re m nt S tire e avings (e ple xam s) I .R.A. (I ndividual Re m nt Account) tire e S .E.P. (S plifie Em im d ploye Pe e nsion) PS 374 (Fall 2009) Social Security -- Part Two 19 Retirement Savings Options Personal, Tax-advantaged Retirement Savings
I .R.A. (I ndividual Re m nt Account) tire e
401 K: Taxe de rre (don't pay until you usethem y) on allowable s fe d one contributions (e ploye m contributeas we tax fre ) m r ay ll e (tax de rre contributions lim $14,000) fe d it: Roth I RA: Contributions Taxable Earnings areTax Fre (contribution e lim $4,000 $5,000 ne ye its xt ar) Also "S pleI RA" and "se dire d IRA" im lf cte PS 374 (Fall 2009) Social Security -- Part Two 20 Retirement Savings Options Pe rsonal, Tax-advantage d Re m nt S tire e avings (e ple xam s) S.E.P. (Sim plifie Em d ploye Pe e nsion)
C ontributions lim d to 25%of incom or $44,000 all from ite e e ploye m r C ontributions proportion to incom ... e PS 374 (Fall 2009) Social Security -- Part Two 21 Who is responsible for providing for the retirement needs of the elderly?
A. Individuals (and their family) C. Both E. Society
PS 374 (Fall 2009) Social Security -- Part Two 22 The Privatization of Risk
Risks that many people experience are increasingly becoming the responsibility of individuals, not of society as a whole PS 374 (Fall 2009) Social Security -- Part Two 23 Revenue into Individual Accounts: #1 Option: Divert Social Security Allow people to accumulate wealth for the future and pass it on to their children S.S. is a bad deal for young workers give them a chance to do better... This forces spending cuts to fund these accounts... Gains from investments would be offset by administrative costs of managing lots of small accounts... PS 374 (Fall 2009) Social Security -- Part Two 24 Option: Increase the base on which the S.S. payroll tax is paid... Since this program is crucial to keep the elderly from becoming poor we should preserve it... The current cap makes this tax regressive... saving the welloff money... This is a "social good" benefiting everyone no reason to fund it with a capped tax, when nothing else is... Just another "soaktherich" scheme... which would hurt economic growth... This is supposed to help everyone with benefits related to taxes... it's not supposed to help the rich... The current "base" already covers 86% of all wages, so most income is already covered... PS 374 (Fall 2009) Social Security -- Part Two 25 Option: Require S.S. coverage for all new state and local government workers The system was supposed to be "universal" this is the final step Many of these workers work for private employers some so they should fully participate to pay their fair share for the benefits This is relatively painless for workers and retirees This may well make these workers worse off... This benefits the federal government at the expense of state and local government... The system is not in trouble because of this... this "fix" solves a nonexistent problem... PS 374 (Fall 2009) Social Security -- Part Two 26 Option: Change the payroll tax rate... Incomes and living standards are expected to rise, so future works can afford the increase... These are "social insurance" contributions... Projections may be wrong it will be easier to undo this than to undo the damage done by benefit cuts... This tax is regressive so this just adds to the burden of the poor... The budget surplus comes from social security so this surplus should be used to give money back to those affected... We should give people a chance to save more for their own retirement... this is the largest tax for 75% of Americans, so we should not make it worse.... PS 374 (Fall 2009) Social Security -- Part Two 27 Option: Apply the Income Tax to all Benefits, minus contributions, just like pensions... Retiree's income should be treated just like work's income Progressive income tax protects the poor... Failing to tax this income, while taxing the rest, amounts to preferential status for this program... The proposal would actually affect lower and middle income recipients This would just be a benefit cut in disguise These benefits were supposed to be special taxing them breaks the bargain that we all made... PS 374 (Fall 2009) Social Security -- Part Two 28 Revenue into Individual Accounts: #2 Option: Divert Social Security This money is supposed to be used for future benefits this is the only way to ensure that the money is saved... England did this successfully, as have others... The poor might be worse off especially if they live a long time or retire during a recession... S.S. is designed to complement private savings it should be kept as a "safety net" and a baseline for everyone... PS 374 (Fall 2009) Social Security -- Part Two 29 Options: Invest Social Security Funds in the Stock Market Higher returns associated with the market compared to government bonds So the "Trust Fund" would have more resources to pay benefits without more taxes... Increase national savings automatically... Government can manage risk of market changes... Government would, in effect, own portions of the private marketplace... People should manage their own money... How do you avoid picking "winners" and "losers" or "friends", but not enemies... (proponents argue you can chose an "index") Would the "equity premium" still exist with this much new money invested? ... Social Security started because of market crash why go back? PS 374 (Fall 2009) Social Security -- Part Two 30 Option: Increase the Age of Eligibility for Full Social Security Benefits Life expectancy has increased from 61 (when it was adopted) to 78 today Encourage the elderly to work longer to improve the system Not everyone lives and works longer (e.g. laborers) and these folks need S.S. the most Many people retire before 65 anyhow; it's difficult for those losing their jobs in their 50's and 60's to get another job anyway... We have already scheduled increases we should wait to see how that works... PS 374 (Fall 2009) Social Security -- Part Two 31 Option: Reduce C.o.L.A.'s by .5% The choice of the CPI was arbitrary it actually overstates the rise is the cost of living. It is hard to simply "fix" the CPI so we should make adjustments for its flaws Technological change will continue to decrease the cost of living... Imposes some sacrifice on many people... CPI is the best measure we have anything else becomes "political" Would affect poorest elderly the most... Adjustments are supposed to be "automatic" not subject to politics what's next? Backdoor tax increase PS 374 (Fall 2009) Social Security -- Part Two 32 Fairest way to reduce S.S. spending reduces benefits to those who don't need them... This targets benefits to those in need Can't afford generous benefits to those who don't need them anymore Option: Impose a Gradual Means Test on S.S. benefits Penalizes those who saved the most... Turns an "insurance" program into a "welfare" program it will lose support as a result... Difficult to administer effectively...
33 PS 374 (Fall 2009) Social Security -- Part Two Option: Increase the number of working years used to compute benefits (from 35 to 38)... We assume that people are living longer... so the benefit calculation should reflect that... Should make the system reflect what people are really doing... Removes incentive to retire early... Proposal hurts women who are more likely to have to take time off Program for retirement should cover everyone those who get training and education, and those who are forced to retire... Penalizes low income workers who have more periods of unemployment... PS 374 (Fall 2009) Social Security -- Part Two 34 Option: Change the S.S. benefit formula for future retirees We've overpromised, so this fixes that... There's no magic to the current formula... Recipients should fund more of their benefits out of individual savings Benefits, even adjusted, will continue to rise... workers should not have to pay for all of that... For many elderly, S.S. is the major source of income so this would throw more into poverty We should make other changes not this one... People should be able to rely on their benefits The elderly should share in the growing wealth of the country... PS 374 (Fall 2009) Social Security -- Part Two 35 Option: Add IndividuallyOwned Accounts as an addition to S.S.: #1 This would increase retirement security without increasing the deficit or requiring spending cuts Introduce private savings into S.S. without disrupting the current system Government should not be mandating how much people save... Social Security is the most popular and effective program in government we should not risk public support for the program...
36 PS 374 (Fall 2009) Social Security -- Part Two Option: Add IndividuallyOwned Accounts as an addition to S.S.: #2 Addon accounts provide for an immediate increase in national savings... Government could administer accounts, saving money on administration... This complicates the system... The result would be widespread differences among retirees, based on different choices and the timing of retirement... This would be especially burdensome for those who can't afford to do it... PS 374 (Fall 2009) Social Security -- Part Two 37 ...
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- Fall '09