The Forgotten Payroll Tax

[RS Davis]

dr said:

Of course no one said they couldn't make other investments, that's not the argument. The argument is that the government does say you have to make their investment (Social Security), regardless of the fact that history shows it's a horrible investment when compared with even the lowest-rate private sector investments. The argument is that I believe I can make better use of 15% of my salary than the government has and does.

You can't defend the violation of an individual's right by emphasizing that other rights were not violated.

The government has no incentive to protect Social Security or manage it's funds well, because people are forced to continue to pour money into it. No government should have a monopoly on it's citizens' investments.

Bravo!!

- Rick

[J. Hill]

dr said:

Of course no one said they couldn't make other investments, that's not the argument. The argument is that the government does say you have to make their investment (Social Security), regardless of the fact that history shows it's a horrible investment when compared with even the lowest-rate private sector investments. The argument is that I believe I can make better use of 15% of my salary than the government has and does.

You can't defend the violation of an individual's right by emphasizing that other rights were not violated.

The government has no incentive to protect Social Security or manage it's funds well, because people are forced to continue to pour money into it. No government should have a monopoly on it's citizens' investments.

The 7.5% tax you pay is not a violation of your rights. Article 1, Section 8 of the U. S. Constitution gives Congress the power to tax for the general welfare. FICA is a such a tax and it's proven itself to be an effective way to provide a foundation for retirement AND provide other valuable benefits such as payments to survivors and minor children. It was never intendend to be the only source of retirement income so comparing it full-fledged retirement investment programs is an unfair comparison. It's not an investment program. It's an insurance program.

[dr snootch]

J. said:

The 7.5% tax you pay is not a violation of your rights. Article 1, Section 8 of the U. S. Constitution gives Congress the power to tax for the general welfare. FICA is a such a tax and it's proven itself to be an effective way to provide a foundation for retirement AND provide other valuable benefits such as payments to survivors and minor children. It was never intendend to be the only source of retirement income so comparing it full-fledged retirement investment programs is an unfair comparison. It's not an investment program. It's an insurance program.

Okay, first thing's first. Start a business, give the government 7.5% of your salary for FICA and see how long it takes them to come looking for the other 7.5%. The tax rate is 15%. The fact that an outside entity pays half of your tax for you does not change the fact that the government wants 15% of your salary and mine and everyone else's.

As far as Social Security being an effective foundation for retirement. Please explain how paying $700,000 in taxes and receiving $140,000 in benefits is effective?

I now have to go to my job so our benevolent government may continue to take my money, then use it for programs that I may or may not agree with that they will then cite to get themselves either votes or direct campaign contributions.

[J. Hill]

dr said:

Okay, first thing's first. Start a business, give the government 7.5% of your salary for FICA and see how long it takes them to come looking for the other 7.5%. The tax rate is 15%. The fact that an outside entity pays half of your tax for you does not change the fact that the government wants 15% of your salary and mine and everyone else's.

No. It's not. The employee pays 7.5% and the employer pays 7.5%. A self-employed person does pay 15% but that's only because he is both employee and employer.

Now imagine the employer portion of the tax is repealed. Do you think employers (other than those employing themselves) are going to give the employees the taxes they no longer have to pay? If the money really belonged to the employee, they'd have give it to them but we both know they wouldn't.

dr said:

As far as Social Security being an effective foundation for retirement. Please explain how paying $700,000 in taxes and receiving $140,000 in benefits is effective?

The $140,000 is risk-free and requires no administrative effort on the part of the beneficiary.

Promoters of privatization schemes never say the increased level of return they promise is merely compensation for the much higher risk investors bear. It is, and it's justified because private investments frequently fail. That's OK for sophisticated investors who can afford the research and effort necessary to properly manage their investments but not for the average worker who doesn't have the resources to do that.

[dr snootch]

J. said:

The $140,000 is risk-free and requires no administrative effort on the part of the beneficiary.

Social Security is by no means risk-free. The risk involved is that our elected government will misspend the money in the fund and drain it. That's a pretty high risk from what I've seen of our government.

A savings account, however, is risk-free, requires a single page application and not only does not decrease in value, but actually provides additional money through interest. Oh yeah, and politicians can't steal from it to pay themselves.

J. said:

Promoters of privatization schemes never say the increased level of return they promise is merely compensation for the much higher risk investors bear. It is, and it's justified because private investments frequently fail. That's OK for sophisticated investors who can afford the research and effort necessary to properly manage their investments but not for the average worker who doesn't have the resources to do that.

I beg to differ. While people who jump at the latest stock fads and don't have an investment plan in place do tend to fail, there are myriad investment companies out there who diversify their clients' investments for them and show exponentially higher rates of return than the Social Security system. I want my money invested with someone who's job is economics, not with career politicians who make their livings by stealing from the public and lying to cover up their abject failures.

Our government is the very picture of the squirrel who ate all his nuts and didn't save any for winter. Our government continually spends whatever excess money they can find on whatever cockamamie project they think will get them the most votes and contributions in the next election cycle.

Our very President was co-owner of the team that gave a good shortstop a QUARTER OF A BILLION DOLLARS to play baseball. This is the person that should be in charge of millions of Americans' futures?

[J. Hill]

dr said:

Social Security is by no means risk-free. The risk involved is that our elected government will misspend the money in the fund and drain it. That's a pretty high risk from what I've seen of our government.

OK, then...virtually risk free. I'll admit the Congress could, if it wanted to, just to decide to abandon the program without paying anything to the beneficiaries and use the money for something else. There's no chance of that happening. The voters wouldn't tolerate the willful impoverishment of themselves and their relatives.

dr said:

A savings account, however, is risk-free, requires a single page application and not only does not decrease in value, but actually provides additional money through interest. Oh yeah, and politicians can't steal from it to pay themselves.

Savings accounts aren't risk-free. Banks fail all the time. Along with them go the deposits, or, at least they would without FDIC, another governemnt program.

dr said:

I beg to differ. While people who jump at the latest stock fads and don't have an investment plan in place do tend to fail, there are myriad investment companies out there who diversify their clients' investments for them and show exponentially higher rates of return than the Social Security system. I want my money invested with someone who's job is economics, not with career politicians who make their livings by stealing from the public and lying to cover up their abject failures.

Politicians don't make investment decisions for SS except to put everything in US Treasury securities. They're the safest securities in the world and are the definition of the risk-free investment. It doesn't take a degree in finance or economics or anything else to put money in Treasuries if security of principle is the primary goal. The United States, in its entire 200+ years has never defaulted on as much as a penny of debt. That kind of security justifies the relatively low rate of return.

dr said:

Our very President was co-owner of the team that gave a good shortstop a QUARTER OF A BILLION DOLLARS to play baseball. This is the person that should be in charge of millions of Americans' futures?

That was the deal that made me swear-off paying for baseball tickets. If I can get them for nothing, I'll go but I'm not going to pay for them if the money is going into deals like that. Just remember, though, capitalists made that deal, not politicians.

[RS Davis]

J. said:

Politicians don't make investment decisions for SS except to put everything in US Treasury securities. They're the safest securities in the world and are the definition of the risk-free investment. It doesn't take a degree in finance or economics or anything else to put money in Treasuries if security of principle is the primary goal. The United States, in its entire 200+ years has never defaulted on as much as a penny of debt. That kind of security justifies the relatively low rate of return.

It's hard to default on debt when you print the money. All they have to do to cover these debts is to print more money, or sell more bonds, both of which decrease real wealth in this country by devaluing investments and making the purchasing power of the dollar weaker. The third option is to raise taxes, which takes money out of the economy and worsens the situation.

What the government does by investing the social security money in treasury securities is as follows:

1. Stand on one side of the window, say, "I'd like to invest this money."

2. Go to the other side of the window and say, "Very well, sir. Here's some pretty, official-looking certificates."

3. Go back to the other side and say, "Thank-you."

4. Go back to the other side and spend the money from the investment, planning to pay it out sometime in the future.

It's just fancy sleight-of-hand for taking the money, spending it, and counting on future generations to pay the bill, just like Bush is doing with the bloated federal budget.

- Rick

[J. Hill]

RS said:

It's just fancy sleight-of-hand for taking the money, spending it, and counting on future generations to pay the bill, just like Bush is doing with the bloated federal budget.

- Rick

That's what any financial asset is. Even those backed by real assets aren't guaranteed because no one can be sure the real assets will have a market value.

[RS Davis]

J. said:

That's what any financial asset is. Even those backed by real assets aren't guaranteed because no one can be sure the real assets will have a market value.

First of all, everything has a market value. I think what you were trying to say is that there is no guarantee that the market value of a given investment will be greater than when one takes the initial risk. This is true.

But the value of an investment, made to and by the government, is never greater than when originally made. It is nothing more than a involuntary loan from the next generation to the current generation.

- Rick

[J. Hill]

RS said:

But the value of an investment, made to and by the government, is never greater than when originally made. It is nothing more than a involuntary loan from the next generation to the current generation.

- Rick

I'm not sure what your saying here. As far as the investor is concerned, the source of the investment income is irrelevant. The US Treasuries in the SS trust fund provide income that can be paid out in benefits to SS beneficiaries. Why does the fact that the funding comes from tax revenue make any difference? Are you opposed to citizens taking care of other citizens?

[RS Davis]

J. said:

I'm not sure what your saying here. As far as the investor is concerned, the source of the investment income is irrelevant. The US Treasuries in the SS trust fund provide income that can be paid out in benefits to SS beneficiaries. Why does the fact that the funding comes from tax revenue make any difference? Are you opposed to citizens taking care of other citizens?

What I am saying is that when I invest privately in something, I make a positive return because the value of that thing has increased. My profit is directly tied to the profitability of that thing. If it becomes more valuable - by serving a consumer need - I make money.

When you invest in government bonds, you are merely investing in the fact that the government will take more from people later to pay you off, with no added value to society. When the government "invests" its own money (for lack of a better term) in itself, it is merely borrowing against the prosperity of our children.

At least when we "invest" in bonds, we are providing our own money voluntarily as a loan to be repaid later. When they take the money, then invest it in bonds themselves, they are just spending the money twice and expecting our children to pick up the tab. I am unwilling to saddle our children with that debt.

- Rick