AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

 I enjoyed reading your article until I got to the paragraph on payroll taxes. I don't like it when
journalists like yourself interject their own personal political bias into the article ( Republicans tend to
forget that people pay payroll taxes). First of all, the payroll tax is 12.4% for Social Security and 2.9% for  Medicare and is imposed on both employees and employers. The self-employed people pay the full 15.3% tax, but even they can deduct half of the tax on their income taxes. The tax is for social security, medicare, disability and children of deceased workers. It is a safety net for disabled people and retired people. Your implication was that the payroll tax was just another tax like the income tax where most of us never see a dime of it. The taxpayer gets back what he or she put into the Social security system and is covered by Medicare when they turn 65. These are direct benefits. Also, if you are so worried about the lower income people paying this tax, they get it refunded to them in the form of the Earned Income Tax Credit. Please keep your own political bias out of your articles and stick to the facts.
 

The payroll taxes take money from today's workers and give it to today's retirees; there is no pot of money sitting about to fund the baby boomers' retirement.  And to make matters worse, the surplus payroll taxes from the past few decades have already been spent.  Congress used the surpluses to fund the rest of the government - and they spent even more and ran up the Federal Debt.  To make matters worse, people are living longer and have had fewer children, so there will be fewer workers per retiree in the future.

 It doesn't matter what your political view are.  We have a problem.  I believe that we need social safety nets.  But we live in a fantasy land where politicians promise to cut taxes and increase benefits.  And voters buy into the fantasy.  Maybe we really do get the government that we deserve.

I second Bob Budding. It's not about political bias. It is a fact that Republicans tend to ignore the existence of this stiff tax when it is a major fact of life for a worker who gets $8 or $10 an hour. And if you read "The Coming Generational Storm" which I coauthored with economist Larry Kotlikoff you'll see that it doesn't matter what you call a tax. What matters is what goes out and what eventually comes back. Net the two and you have the lifetime taxrate that a worker may pay.

Take that approach, which is called generational accounting, and you'll find that the effective tax rate most young workers will pay on their lifetime income is far higher than the lifetime tax rate older workers and retirees have or are paying. Politicians of both our wretched parties like to give taxes different names and take them out of different pockets just to keep us all at each others throats. The reality is the BOTH parties have made promises that can't be fulfilled.

 Beyond the book, I've written lots on this subject and every column has links to supporting sources.

http://assetbuilder.com/tags/Social+Security/default.aspx

Scott

Scott