The Social Security Tax - why it is a Regressive Tax and what Solutions are possible

One of the Tax Increases enacted or, more correctly, reinstated by the ,,Fiscal Cliff’’ Legislation is the additional 2% Social Security Tax.  This Tax was reduced from 6,2% to 4,2% by the Bush Tax Cuts; in one of the more bizarre Offshoots of the ,,Theory of Reaganomics,’’ take in less and pay out more, don't worry, as an old Sales Manager used to say, we'll make it up in Volume.

Of course, it doesn't work that Way but, then again, Economics was not Mr. Bush's Forté.  We don't know what his Forté was, actually, but certainly Economics was not one of them.

As a Result of this Action and previous underlying Actions, the Social Security Fund is facing a Deficit (Loss) of around $ 100 Billion in 2013; nobody knows for sure, really, but this Estimate is as good as any.  Reverting to the 6,2% Rate will alleviate the Problem somewhat but nowhere nearly enough.

Everybody who gets a Wage pays this Tax (matched by an equal Amount in Employer Contributions; the Employer Contributions Rate had not been reduced so it did not have to be revised - interestingly, no ,,Job Creation’’ Argument was made for that by the Bush Administration); however, the more interesting Part is that this Tax applies only to the First $110.000,00 or so of Income that everybody earnes; after that, one is home free; no 6,2% for Employee nor Employer.  This Policy, which interestingly, is not practiced by any other major Country which has a Social Security Type System merely exacerbates one of the most regressive Taxes imaginable.  Doubling the Social Security Tax Ceiling would eliminate 40-50% of the Annual Deficit and eliminating it altogher would allow for financing of Social Security and Medicare without straining any other Part of the Federal Budget.

Raising or eliminating the Ceiling would affect only that Part of Salaries in excess of $ 110.000,00 which would allow the Tax to become less regressive (although it would still be regressive) and bring a slight Modecum of Equity to the Social Security System as well as resolving another Piece of the Federal Budget and Deficit Dilemma.

The one Caveat would be, not to let the Clintons get Wind of this (admittedly, a hard Feat to accomplish) and throw the additional Revenues into the General Fund (as they did before), claim that somehow they ingeniously balanced the Budget and then leave for someone else after them the Task of straightening out the Mess once again.

1 January 2013 The ,,Fiscal Cliff’’

Folks,

As you let the Bubbly flow for the New Year 2013, as you listen to President Obama saying ,,A Deal is within Reach,’’ as you try to make sense of all this,

Forget about Reaganomics,
Forget about Clintonomics,
Forget about Bush whatever ,,Nomics’’ (Bush, George W., not Bush, Herbert G. W.)
Forget about Obamanamics,

what these Guys are doing is just not fair.

You cannot have, one cannot have, this Country cannot afford what George Herbert W. Bush called what all this actually is, what he called it, by its real Name:

,,Voodoo Economics.’’

Simply put, you cannot lower Taxes, go to War in two Countries, engage in Bailouts of astronomic Proportions, attempt to get out of the most severe Recession since the Great Depression (which no one dares call a Depression) plus do all of the ,,Regular Government Business’’ and allow the Stock Market to go up to 13.000 Points due to, among other Factors, Tax Cuts, Wholesale Tax Loopholes and the Largesse of the Federal Reserve Bank, a Policy which Mr. Bernanke calls ,,Quantitative Easing.’’

Write or call your Senator.  Write or call your Congressman.  Inform The White House of what you think, regardless of whether you agree with the Opinions or the Policies advocated here.

No Matter how much the Members of Congress and the President are getting paid and they are getting paid more than most Americans, their Inability, Unwillingness or Failure to deal with this Issue in a fundamental Manner, other than the Quilt Patchwork Approach which has become ,,Modus Operandi’’ they are, measured by any Corporate or other Performance Standards, getting paid too much.

Remember, any Announcement of a Deal being reached is premature and not really indicative of what is happening.  Assuming the Deal to let the Bush (George W.) Tax Cuts expire for those earning more than $ 400.000,00 and $ 450.000,00 respecdtively, along with the indispensable Social Security (Payroll) and Inheritance Tax Increases, there are still enormous Issues ahead:  ,,Sequestration’’ and increasing the Debt Ceiling Limit.

Write.  Write today.  Write tonight.  It could be the most important New Years' Message or Resolution you have made.

31 December 2012 - The Fiscal Cliff and Negative Energy

The Reality of the impending ,, Fiscal Cliff ’’ has reached Washington, today, New Year's Eve.  After Weeks of Predictions by various Pundits both inside and outside of the Government that a ,, Last Minute Deal ’’ would be reached, now, it appears that, at best, some Sort of ,, Last Minute Patchwork ’’ is the best one can hope for.

Former Senator Alan Simpson was ridiculed by both Democrats and Republicans for uploading a Video on YouTube in which he ,, danced ’’ well, sort of, along a Can of Soda (or, maybe was it a Beer Can?), symbolically pointing out to what is likely to happen, which is, kicking the Can forward.

There are numerous Factors which have contributed to reaching this sad Situation and this Column would like to attempt to refresh our Recollections as to how we may have gotten to where we are and why it seems that both Congress and The President appear so powerless in finding a Solution, a real Solution, not a Patchwork.

To this, we also wish to add the Following Observation.  One of the Attributes which is necessary for the Political Leadership and, yes, the Political Infantrymen as well, to find Solutions to or in difficult Situations is Enthusiasm, Élan and just a pure Desire to get Things (or at least something) accomplished.  This Attribute, this Force is lacking, lacking so glaringly that one cannot but feel the
,, Negative Energy ’’ which surrounds those who must struggle and find a Solution.

But what are the Factors which got the Federal Government into this horrid Situation and who was responsible for getting us there?  The List is long.  Below, we can only attempt to enumerate some of the Factors, likely important ones but certainly not all of the important ones along with Reasons why addressing these Problems is ultimately necessary in order to address the ,, Fiscal Cliff ’’ as well as the surrounding Decisions which need to be made (increasing the Federal Debt Ceiling).

§  Afghanistan - Defense Expenditures.  It is generally accepted by a good Number of People now that the War in Afghanistan has been a Financial Disaster.  Expenditures in Afghanistan as well as Iraq and Pakistan need to be addressed as President Reagan would have put it, with a
,, Red Pencil.’’ 

§  Income Tax Rates.  It is Time not only for the Republicans but for everyone else to recognize that the Principle of
,, Reaganomics ’’  which theorized that the Government can eventually raise more Revenue by lowering Taxes (and stimulating the Economy) is, basically, what President G. Herbert Walker Bush called ,,Voodoo Economics.’’  Moreover, specifically as to Corporate Income Tax Rates, while it is true that some Industrialized Countries have lower Corporate Income Tax Rates than the United States, none has the Array of Tax Deductions and Loopholes, some, custom written by Congress which are available to many large Corporations in the United States.  Returning to the pre-Bush (G. W. Bush) Era Tax Cuts for People earning in Excess of $ 250.000,00 is really not only a modest but also a sensible Solution and no credible Argument has been put forward that such a Move would result in the Loss of Jobs or Job Creation.

§  Restore Social Security, Medicare and related Social Costs to the pre Clinton Status Quo of ,,Trust Funds.’’  This will prevent future Presidents from claiming that they have ,,balanced the Budget’’ by shifting Funds around and raiding Funds which show large Surpluses (or even small Surpluses).

§  Remove the Social Security Tax Cap which currently stands at $110.000,00.  Think about this for a Minute.  More important than the Rate paid by Employees (currently lower than the Rate paid by the Employers, somebody forgot the ,,creating Jobs’’ Argument on that one by not reducing the Employers’ Contribution Rate) is that all the huge Earnings by Corporate Executives and Wall Street Bonus Recepients are exempt from Social Security Taxes; once they've paid the $ 110,000.00, the are home free.

§  Put Pressure on the Federal Reserve in general and Mr. Bernanke in particular to abandon ill advised Theories of ,,Quantitatve Easing’’ and what not by pouring Billions of Dollars into the Stock Market.  This is simply irresponsible.  The Stock Market is jittery at the Prospect of the Fiscal Cliff simply because it loves ,, Easy Money.’’  Even though the Stock Market has propelled to new Heights since the Start of the Fiscal Crisis (generously not referred to as a Depression but as a Deep Recession), this has had very little Impact, if any, on the Economy.

§  Abstain from huge Expenditures into Support Ventures
(,, Bailouts ’’) of large and even not so large Corporations such as AIG, General Motors, Solindra and others.    Although AIG has technically repaid all of the Government Loans this does not  account for Billions of Tax Breaks which AIG has received from the Government.  Besides, much of AIG has now been sold to China.  The General Motors Bailout is costing the Government Billions in Net Losses.  Somebody said, ,,Give me $ 60 Billion and I can show you how I can make a Profit.’’  It would be good to consider, at least, the Opinion of some Experts who contend that it will not be possible for General Motors to succeed as a viable Entity.

There are other Issues and Areas to be addressed but we wanted to list just a few.

Additionally, however, another Warning regarding a great Disservice which the Federal Reserve and Mr. Bernanke are doing to the Budget.  The Fed is keeping Interest Rates low, almost at Zero, to be exact.  This helps Banks and Financial Institutions which are entitled to borrow directly from the Fed and then reap huge Profits in large, complex and sometimes questionable Financial Transactions.  This does not help the Consumer, or even most Business Owners, who must pay a Bank or a Financial Institution nearly Ten Times, or more, in Interest, than what the Financial Institution needs to pay to acquire the Funds.

But there is a hidden Danger.  The Fed cannot keep Interest Rates at such low Rates at Infinitum.  Some Day, after Mr. Bernanke leaves (and he wants to leave soon), Interest Rates will have to, at best, inch or creep upwards and when that happens, the Cost of borrowing Money for the Federal Government will rocket astronomically.  The Rate on Federal Borrowing may one Day be dictated by Markets and The Fed may not be in a Position to dictate what it will be.  This has happened elsewhere, as we all know, only too well.  In such an Event, the Impact of Debt Service, not to mention the Cost of new Borrowing on the Federal Government will be not a pleasant Thing, as it is today for Mr. Bernanke to play around with announcing what the Interest Rates will be and throwing Money around into the Financial Markets while he invents new Names, such as ,, Quantitative Easing’’ for Things which aren't really that new at all.

Fiscal Cliff

Recent Reports suggest that soon, a Family of Four will be paying $ 25.000,00 for Health Insurance annually and that, with less Coverage and higher Deductibles.

While the Affordable Care Act (so called Obamacare) is a Step in the Right Direction, it is, some suggest, not nearly enough to bring under Control Medical Costs.

Various Statistics reveal the following:

§ Medical Costs in the United States are the highest in the World.  The Second Runner Up is at less than half.

§ Doctors in the United States earn the highest Incomes of any Doctors anywhere, so much so that Doctors from less affluent Countries who have a Medical Education in English (it is considerably more difficult to pass the Boards with a non English Medical Education) are clamoring to get a Foothold in the United States and practice, yes, practice Medicine, of course.

§ Despite all this, Life Expectancy in the United States is just about Neck in Neck with Life Expectancy in, of all Places, some place like Cuba.  There are a Multitude of Reasons for this, of course, including Dietary Factors but, still, one would expect more, given the Costs of Health Insurance and Health Care.

§ A Common Medical Procedure, known as an MRI costs, on Average, according to some Statistics, $ 2.500,00 in the United States.  It can be performed at some Outpatient Clinics for as low as $ 600,00 and one Reporter recently found a Hospital in Boston which charges in Excess of $ 7.000,00 for this exact same Procedure.  Health Insurance Companies have Contracts under which they pay less (why should people who pay for Medical Care out of their own Pocket have to pay more is a Question which deserves being raised and be examined on its own Merits).  The more interesting Thing, though, is that the same exact Procedure, an MRI costs approximately $ 160,00 in Germany, France and Italy.  In Japan, a Country not exactly known for low Costs, it costs $ 60,00.  They all use the same exact Equipment, manufactured by either Siemens or GE and, at least two of the four Countries above, Germany and Japan, are not exactly known for low Wages.

What is going to be compromised between Mr. Obama and Mr. Boehner with regard to the ,,Fiscal Cliff,'' whatever that means, is yet to be revealed and it is probably not known by either of them at this Moment.

However, one Item which has come up is the new Medicare Taxes which will be going into Effect 1 January 2013, as a Result of Legislation passed by Congress and signed by Mr. Obama.  This Legislation provides, no, it does not provide for new Taxes, it establishes the Provision that Medicare Taxes should continue on Wages in Excess of $200.000,00 (for Single Taxpayers) and $ 250.000,00 (for Married Taxpayers).

http://nbcpolitics.nbcnews.com/_news/2012/12/11/15846903-democrats-seek-delay-in-one-obamacare-tax-increase?lite

Suddenly, this Provision has now come under Scrutiny and may be sacrificed as part of the Negotiations to avoid the so called ,,Fiscal Cliff.''  We do not understand this Point.

The Congress and the President of the United States can decide what the Obligations (including the financial Obligations) of the Federal Government will be on a Year to Year Basis.  Some of these Obligations are inescapable, they are either dictated by Law or by Contracts (such as Debt Interest, for Example).  How are Wage Earners who make more than $ 200.000,00 or $ 250.000,00 ,,hurting'' the Economy by paying 1,45% of their Wages for Medicare Tax on Income above that Amount?

Paranthetically, another Tax which is equally regressive is the Social Security Tax, currently at 4,2% for Employees, but only on the First $110.000,00 of their Wages.  Translated, that means, of course, that People who get huge Salaries, sometimes $ 500.000,00, sometimes $ 5.000.000,00 or even more, simply pay that $ 4.000,00 or so in Social Security Tax and then are 4,2% ahead for every Dollar they earn from $110.000,00 forward.

One Thing is apparent.  With this Kind of Manœvering, if it comes into Play, very little is going to get accomplished.  And the Can will be kicked forward.

The Problem with President Clinton

The Problem the Democrats have with President Clinton, but do not or do not want to recognize, at least not yet, is similar to the Problem Republicans have with President Reagan but, it may be, that Republicans do not recognize their Problem, not yet anyway, either.  Certainly, the Republicans do not want to recognize it, though.

However, President Reagan has slowly began to fade from Memory, that ,,Great Communicator'' who had to have ,,Handlers'' when it came to Presidential Debates.  President Reagan caused enormous and, one might say, irreparable Damage by stimulating the Economy with enormous Deficits which expanded the Economy, created a Lot of rich People but also started the Build Up of an unprecedented Debt Load.  After a brief Hiatus during the 4 Year Presidency of President George H. W. Bush (Bush ,,41'', who called ,,Reaganomics'' ,,Voodoo Economics'') President Clinton not only continued President Reagan's Tradition but even praised it.

So now President Clinton whose salacious Activities with Monica Lewinsky have long ago faded from Memory, he and Secretary of State Hillary Clinton now boast, he knew how to balance the Budget.  Yeah, he did.  But how he did it is the more interesting Part.  President Clinton took the Postal Service Retirement Fund ($ 7 Billion) as well as the Social Security and Medicare Trust Funds (which were enormous Sums of Money) and threw them into the General Budget thusly creating a huge but temporary Infusion of Cash and, ,,Poof!,'' it looked as if the Budget was ,,balanced,'' but, again, only temporarily.  Now, not only the U. S. Postal Service but, far more worrying, Social Security and Medicare are in dire Straits.  Everyone is scared of raising the Payroll Tax Deduction Ceiling (now at $ 110,000 for People earning $ 110 Million, or $ 11 Million or even $ 1,1 Million because it would ,,discourage'' the Creation of new Jobs?).  President Clinton's Two Terms were then followed by the two economically disastrous Terms of President George W. Bush (Bush ,,43,'' the Dubya) and during his Term and after that, we all know what happened.  The Federal Deficit now adds up to $ 16 Trillion, give or take a Couple of Pennies and nobody has come up with a Plan of any Kind as to how this Deficit might begin to be retired.  Statements by the two Presidential Candidates, President Obama and former Governor Romney are about how they plan to reduce the Size of future Deficits and eventually reach (one hopes) a Balanced Budget, if...if this and if that and if something else, but, without raising Taxes.  Go figure.

So, when Mr. Clinton claims that the Economy is not ,,hunky dory'' but on the Mend,

http://firstread.nbcnews.com/_news/2012/10/19/14567670-clinton-lauds-obama-says-economy-not-hunky-dory-but-on-the-mend?lite

it is reasonable to question his Authority at coming up with such Statements.  Actually, with the Congressional Impasse over Cuts and Taxes and with ,,Automatic Sequestrations'' being a Problem which, no matter which way it is resolved or remains unresolved, the adverse Consequences on the Economy, the Problems which will be faced by the President after he takes the Oath of Office on 20 January 2013, no Matter if it is the current President or the Republican Challenger, will be daunting, very, very daunting, indeed.  And that, while at the same Time having to deal with Mr. Bernanke's untested Theories about ,,Quantitative Easing,'' ,,Operation Twist'' and who knows what else that Mr. Bernanke might come up with.

Sometimes, we can overcomplicate Things in spite of ourselves.  The basic Truth is that just like the Republican Party is not the Party of Ronald Reagan, it is the Party of Abraham Lincoln and Theodore Roosevelt; equally, the Democratic Party, it would be good to remember, is not the Party of Bill Clinton; it is the Party of Thomas Jefferson and Franklin Delano Roosevelt.  President Clinton said, when he first ran for President, ,,It's the Economy, Stupid!'' and he was right.  One could have also said at the same Time and certainly can say it now:  ,,Keep it simple, (Stupid!)''  ,,Do not solve a Problem by creating another Problem.''

 

The Vice Presidential Debate

The one and only Vice Presidential Debate took place on Thursday.  It was at a Level which far superceded the preceding Affair which took place Four Years ago between Vice President (then Senator) Joe Biden and then Governor of Alaska Sarah Palin.  The latter, one could say, was merely a Caricature of a Vice Presidential Candidate, a Choice which Senator John McCain came to regret deeply but, of course, too late for himself.

Vice President Joseph R. Biden

Both Vice President Joe Biden and Congressman Paul Ryan had one Job to do and they both knew it; enhance the Position of their respective Presidential Running Mate and inflict as much Damage on the Opposition as possible, especially in View of the unexpected outcome of the First Presidential Debate only a Week ago.

Congressman Paul D. Ryan

Each of the two Opponents put into sharp Focus the Positions of their respective Ticket although, sadly, the National Audience for the Debate was modest; not too many seemed to care, apparently, what each had to say.  At the same Time, however, this Observer believes, they both revealed, either unwittingly or because they did not know how else to avoid, the Weaknesses in their Views.

Vice President Biden argued eloquently and flawlessly for the Responsibilities of the Federal Government when it comes to Social Security and Medicare among other Things but he was not able to offer a Plan which would show how the Federal Government can sustain over the long Term, or even the short or moderate Term, these Expenditures.  Although the Vice President argued, passionately, for an end to the ,,Tax Cut'' for People making $250.000,00 or more, the Truth of the Matter is, even if that Plan were to materialize despite the fanatical and, some would say, illogical Opposition by the Republican Members of Congress, that, alone, would not come even close to beginning to deal with the horrendous Federal Deficit which threatens to cripple not only Social Security and Medicare, but much, much more.

Congressman Ryan, on the other Hand, made the Argument, with equal Eloquence, for the Management and Control of Social Security and Medicare (but not Defense) Costs.  Certainly, Management and Control of these Costs (whether in the Form proposed by Congressman Ryan, who has been advocating much of what he said long before he became a Vice Presidential Candidate) or another, are necessary.  But, assuming for a Moment, that everything that Congressman Ryan is proposing were to be implemented, that, too, would not come even close to dealing with the - just as horrendous - Federal Deficit.

So, where does that leave us?  Lost in the Equation was the Observation and Warning by IMF Director Christine Lagarde, who warned of dire Consequences if these severe financial Problems are not addressed and, soon.

Mme. Christine (Madeleine Odette) Lagarde, Director of the IMF

One interesting ,,Tidbit'' that came out during the dueling was about Embassy Security Details.  Vice President Biden pointed out, correctly, that Congressman Ryan had voted against increasing the Security Detail Budget for Embassies and Consulates abroad by $300 Million.  One might well wonder just how much Money is being spent on Embassy Security Details in the First Place, if the Increase that was being sought, alone, was $ 300 Million.  One might equally wonder why the U. S. Embassy in Baghdad has nearly 16,000 Individuals working there (Largest U. S. Embassy abroad, according to the last Fact Check).  You could ask, which is the Second largest U. S. Embassy abroad.  Here is the Answer:  Beijing, China and, although just recently opened, it is too small and the Construction of an Addition is under Way.
 

A Letter to the Democratic Party Regional Director

Portions of the Letter and several Names have been edited.

...

Now there are many People who are far smarter than I am and I have no Idea how Things have been worked out or are going to be worked out on this Budget Thing.  All I know, as they used to say, is what I read in the Papers.  And what I read is that there is going to be a super bloody Fight over the next Sixth Months about these Cuts, and then something about a Constitutional Amendment and on and on and on.

We, when I say we, President Obama and all of us who voted for him inherited Two Wars from President Bush and they were both funded outside of the Budget by Mr. Cheney and, I suppose, Mr. Bush must have signed off on it.  But these Expenditures are being continued and they are huge and I do not sense any Urgency about the Money being spent, or as one might put it, wasted, on this.  I doubt that The Department of Defense can afford to get three competitive Bids every time they have to airfreight Drinking Water to Afghanistan.  Yet, that Money is coming out of somewhere and somebody is getting rich, very rich out of it.  That is just an Example.  And that is a Lot of Money.

Someone just acquiesced when Mr. Bernanke spent, I am not sure how much, they say, $ 6 or 7 Hundred Billion; that sounds like a Lot of Money to me, on ‘Quantitative Easing’ and for the World of me, I never heard that Phrase when I went to College nor ever since.  I just wonder whether President Wilson is rolling in his Grave when he hears Mr. Bernanke talk like that, wondering what has become of his beloved Princeton University.

Equally, a Lot of People are concerned about the Things that Mr. Geithner is doing in Office, including the Fact that he is spending more Time, the Way one hears it, talking to Wall Street People and Bank People each Day, than talking with Government People and, just intuitively, that doesn’t sound right either.

I am sorry that President Obama appears, some say, manœvered by People like this, after all, these People are not Tea Party Republicans, they work for the President and we all pushed for an Agenda when working to elect the President and overcame nearly astronomical Odds in order to prevail.

Moreover, it is disingenuous for both Mr. and Mrs. Clinton to trumpet that they have balanced the Budget when they took all of the Entitlement Funds, that includes Medicare and Social Security and dumped them in the General Fund.  Even my Cat, had I had one, would have known how to balance the Budget that Way.

One should perhaps lament not having President Bush, not George W. Bush, that other President Bush, to come out and say a few Words today, as he did to President Reagan, when he called this Type of Behaviour that President Reagan wanted to institute and instituted ‘Voodoo Economics.’  But President Reagan succesfully managed to kick the Can forward and now we all have to deal with it.

To this, one should reflect, perhaps, that the Republican Party was the Party of Abraham Lincoln, a Man who towers as a Beacon in the Annals of History throughout the World as someone who stood for Justice and Equality and paid with his Life for it, yes, Abraham Lincoln and not Ronald Reagan, as some of our Republican Friends would have us believe today and that the Democratic Party, the oldest Political Party in America and one of the oldest Political Parties in the World is the Party of Thomas Jefferson, who found his Inspiration in the Jewish Philosopher Baruch Spinoza and his Writings about Ethics, yes, Thomas Jefferson and not Bill Clinton.

Dancing Elephants - Continued - The New York Times

Jeffrey R. Immelt? Ain't this the Fellow at GE with the Dancing Elephants who was chosen by The President to head the Council of Economic Advisers?

Now, Boys, shouldn't he also be given a Hefty Raise or be paid a Huge Bonus by GE? And, given the Expertise of John Samuels, who formerly worked for The Treasury and now works for GE, it should not be too difficult, if at all, to claim either Payment as an Expense Deduction for GE. No Social Security Withholding Taxes need to be paid to The Treasury for this, either, since the additional Compensation would be over the Threshhold. What the Heck! Give'm both the Raise and the Bonus! There would be no Adverse Impact on GE's Earnings if you do this, Boys; the Money will come from the U. S. Treasury! Oh, lest we forget; no Social Security Withholding Taxes to be taken from Mr. Immelt's Compensation for his 'Services' to the Government as an 'Economic Adviser.'

The earlier Reference to 'Dancing Elephants' in this Forum appears to be corroborated by the Article which appeared on 24 March 2011, in The New York Times (Link below). The New York Times also makes Reference to GE's Slogan in the 'Dancing Elephants' Ad: 'Imagination at Work!' NO KIDDING!!!

http://www.nytimes.com/2011/03/25/business/economy/25tax.html?_r=1&nl=todaysheadlines&emc=tha2