It is a well known fact that the government "invests" social security tax revenue in treasury bonds, which really means they put treasury bonds into the old age trust fund and put the cash into the general operating fund. Those funds are then used to fund the bloated federal budget.
But that isn't enough to satisfy the ravenous appetite we have for spending beyond our means. Our government then goes on and borrows hundreds of billions of dollars more to continue spending.
That's what this "debt ceiling" debate is all about. I believe that both parties are to blame for the massive debt caused by out of control spending.
The overall federal budget has grown since Obama took office. But let's take a look at the numbers more closely for 2007 vs. 2010. I chose 2007 because it was the last full year before the economy collapsed. I have stripped out some spending (defense, social security, medicare, and stimulus), for reasons described below. Here are the numbers:
2007 (millions of dollars):
Total Budget: 2,863,084
Defense costs (deduct) 625,835
Social Security (deduct) 588,962
Medicare (deduct) 385,008
Income Security (deduct) 368,026
Jobs Bill (deduct) 0.00
Adjusted Budget: 895,253 (895 billion, 253 million dollars)
2010 (millions of dollars)
Total Budget: 3,600,577
Defense costs (deduct) 722,138
Social Security (deduct) 723,504
Medicare (deduct) 462,087
Income Security (deduct) 664,559
Jobs Bill (deduct) 50,000
Adjusted Budget: 978,289 (978 billion, 289 million dollars)
If you take the "adjusted budget" from 2007 and adjust it for 2.28 (roughly 7% total), you get an inflation adjusted total of 957, 895 (957 billion, 895 million). That is only 20 billion less than the 2010 adjusted budget.
So, in reality Obama has only increased the size of the federal government by 2.13%. Keep in mind, this is using "official inflation" which excludes oil price fluctuation. Real inflation has been more than 2.28% per year since 2007. Oil prices alone increased 68% between Jan 2007 and Jan 2010.
Let me explain my reasoning for deducting some of these expenses. Keep in mind that these deductions were done for both 2007 and 2010 to make sure we are comparing apples to apples.
Defense: This really isn't discretionary spending. The fact is, we have two wars going on. We should not place blame on Obama for properly funding our troops. That's why I removed the defense spending.
Social Security: If it were not for the "investment" of social security funds in treasury bonds, the social security system would not be part of the federal budget. It could be, and should be completely separate. These costs are not caused by Obama, but by relentless borrowing over the decades. Not even the increase can be attributed to Obama. That's why I deducted them.
Medicare: For the same reasons as social security.
Income Security: This includes a number of expenses for retirement, unemployment benefits, housing assistance, disability, and nutrition assistance. Most of the increases have been caused by the recession.
Jobs Bill: This was part of the overall stimulus. If you're against stimulus, I urge you to read about Hoover's role in the great depression. Stimulus was necessary to limit the catastrophe, regardless of what political talking heads say.
If you aren't a fan of Obama, that's fine. But keep these numbers in mind when you think about the fiscal outrage coming from the right. If you want low taxes, some of these expenses are going to have to be reduced.
However, it seems that Republicans want to eliminate parts of the national debt (or delay them a good while) by cutting social security and medicare. Since these programs are funded by taxes taken from the paychecks of average workers, and these funds were "borrowed" to keep taxes artificially low, I am absolutely opposed to cutting these programs to continue keeping taxes artificially low. If cuts must be made, they need to be phased in over a decade or more.
If you want a bloated military, fine. If you want massive subsidies to multi-national corporations, fine. If you want to deduct your mortgage interest, fine. If you want a deduction for your children, fine.
But you must be willing to pay the taxes to fund these expenses, deductions, and loopholes. If we continue to have artificially low taxes while we continue our spending binge, we will soon find ourselves insolvent as a nation.
Now let's talk about this debt ceiling debate. Republicans say that Obama isn't willing to compromise on increasing taxes. But the facts show that Obama has "sweetened the pot" for the GOP many times during these negotiations. Obama recently offered $3 in spending cuts for every $1 in additional tax revenue.
Economists agree that the budget cannot be balanced through spending cuts alone. The defense budget and "core" federal budget exceed tax revenues. Tax revenue must be increased, along with significant spending cuts in order to put our country on a sustainable financial course. If we also invest in small businesses, we will see the job market improve significantly.
Monday, July 25, 2011
Tuesday, July 19, 2011
FICA Tax, steal from average workers to cut taxes for the rich
Every wage earner in the United States pays FICA tax, which is the tax that funds social security. Your employer is required to match your contribution, bringing the total tax to 12.4%.
The problem is, there is an income limit of $106,000 above which there is no FICA tax.
The other problem is, the government issues IOUs to the social security trust fund and uses that money to fund the general government operations.
Now, let's look at the swindle:
Based on an IRS study of the 400 wealthiest American taxpayers, their "effective tax rate" was 16.5%. Effective tax rate is basically the final percentage after all deductions, write offs, and loop holes are taken into account.
Now take a taxpayer making $50,000 / year, who does the standard deduction. This taxpayer actually pays around 14% effective tax.
So, when the wealthy complain about higher taxes they really aren't paying that much higher percentage after all their exemptions, write offs, and loop holes.
Then comes social security tax. Add the 6.2% paid by the $50,000 worker, and you come up with 20% tax. Add in the employer's portion (which puts downward pressure on wages), and you actually have a 26% effective tax rate.
With the exemption of wages over $106,000, social security tax has a negligible effect on the effective tax rate of the uber-rich.
Now you may be saying, "So what? Employees eventually get that money back".
Let me demonstrate some scenarios that will unfold as social security becomes depleted.
1. The government will raise the social security tax, as they have done many times. They will likely leave the income exemptions (but likely increase them for inflation). Since the government won't be able to borrow from social security anymore, income taxes will have to be increased to cover government operations.
2. They will phase out social security, leaving millions of American's out in the cold in retirement despite the fact that they paid into the system their whole lives.
In either case, social security taxes have been taken from average wage earners, then transferred to the general operating fund and used to fund the government. When the time comes to pay the IOUs, the government will either cancel the "internal debt" by eliminating social security, or it will raise the social security tax.
The reality is, after social security taxes are taken into account, average wage earners pay a higher percentage of their income to fund the bloated federal government than their wealthy counterparts. Social security taxes are taken disproportionately from average Americans, and those funds used to fund the government, while their wealthy counterparts stop paying into social security after $106,000.
Because the government borrows from social security to keep taxes artificially low, the social security tax is a defacto tax increase on the average American taxpayer. In essence, the wealthy get tax breaks on the backs of average American workers.
While I agree that we need to get our financial house in order, I see nothing being done by either party to fix this problem. We must stop borrowing from the social security trust fund, and we must raise taxes and cut spending to ensure that social security remains viable for current and future workers. If we can't get our financial house in order, we will see a drastic decline in American power, influence, and prestige.
The problem is, there is an income limit of $106,000 above which there is no FICA tax.
The other problem is, the government issues IOUs to the social security trust fund and uses that money to fund the general government operations.
Now, let's look at the swindle:
Based on an IRS study of the 400 wealthiest American taxpayers, their "effective tax rate" was 16.5%. Effective tax rate is basically the final percentage after all deductions, write offs, and loop holes are taken into account.
Now take a taxpayer making $50,000 / year, who does the standard deduction. This taxpayer actually pays around 14% effective tax.
So, when the wealthy complain about higher taxes they really aren't paying that much higher percentage after all their exemptions, write offs, and loop holes.
Then comes social security tax. Add the 6.2% paid by the $50,000 worker, and you come up with 20% tax. Add in the employer's portion (which puts downward pressure on wages), and you actually have a 26% effective tax rate.
With the exemption of wages over $106,000, social security tax has a negligible effect on the effective tax rate of the uber-rich.
Now you may be saying, "So what? Employees eventually get that money back".
Let me demonstrate some scenarios that will unfold as social security becomes depleted.
1. The government will raise the social security tax, as they have done many times. They will likely leave the income exemptions (but likely increase them for inflation). Since the government won't be able to borrow from social security anymore, income taxes will have to be increased to cover government operations.
2. They will phase out social security, leaving millions of American's out in the cold in retirement despite the fact that they paid into the system their whole lives.
In either case, social security taxes have been taken from average wage earners, then transferred to the general operating fund and used to fund the government. When the time comes to pay the IOUs, the government will either cancel the "internal debt" by eliminating social security, or it will raise the social security tax.
The reality is, after social security taxes are taken into account, average wage earners pay a higher percentage of their income to fund the bloated federal government than their wealthy counterparts. Social security taxes are taken disproportionately from average Americans, and those funds used to fund the government, while their wealthy counterparts stop paying into social security after $106,000.
Because the government borrows from social security to keep taxes artificially low, the social security tax is a defacto tax increase on the average American taxpayer. In essence, the wealthy get tax breaks on the backs of average American workers.
While I agree that we need to get our financial house in order, I see nothing being done by either party to fix this problem. We must stop borrowing from the social security trust fund, and we must raise taxes and cut spending to ensure that social security remains viable for current and future workers. If we can't get our financial house in order, we will see a drastic decline in American power, influence, and prestige.
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