Tag Archives: social security

Taxes & Generational Equity: Federal Taxes in 2020

For the past four decades, the retired, the rich and (in some states such as New York) selected public employees and unionized employees of government contractors have become richer and richer, while ordinary workers in the private sector have become poorer and poorer.   It is estimated, for example, that the average Millennial is paid 25 percent less than the average Baby Boomer had been at the same age. 

https://www.wsj.com/articles/playing-catch-up-in-the-game-of-life-millennials-approach-middle-age-in-crisis-11558290908

At the same ages, Gen X men working full time and who were heads of households earned 18% more than their millennial counterparts, and baby boomer men earned 27% more, when adjusting for inflation, age and other socioeconomic variables.  Among women, incomes were 12% higher for Gen Xers and 24% higher for baby boomers than for millennials, using the same measures.

If one ignores the rising level of education, labor force participation and pay of women since 1980, this is a trend that actually started with those at the back end of the Baby Boom, who have been disadvantaged compared with earlier-born generations, those now in retirement, for their entire lives. After I called for a study of Social Security records some years ago, one found this.

Adjusting for inflation, the median male worker born in 1958 earned just 1 percent more during his career compared with the median man born 27 years earlier, in 1932. In fact, the median male born in 1958 earned 10 percent less during his career compared with the median male born 16 years earlier, in 1942. The lack of progress of mid-level male earners is not a surprise, of course. We know the median real hourly wage received by men reached a peak sometime in the 1970s. It has not surpassed that peak in any year since the 1970s, and in many years it has been far lower.

And yet it is work income that has been taxed more heavily over the past four decades.  Retirement income has received the same exemptions, and in fact even more exemptions, compared with the time when each generation was richer than the one preceding, rather than poorer, and seniors were more likely than working-age adults to be poor, rather than less likely to be poor.   And investment income has come to be taxed far less than work income.  At the federal level, one by one, both political parties have supported most or all of these tax deals to benefit the retired, rich, and the other organized selfish.  What does it add up to?  Let’s fire up the Turbo Tax and find out.

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A Value Added Tax Would Be Far More Fair Than the Payroll Tax

As I showed in my prior post…

https://larrylittlefield.wordpress.com/2019/07/31/dont-increase-the-federal-payroll-tax-replace-it-with-a-value-added-tax/

The federal payroll tax on the first $132,900 in wage and salary or self- employment income, a tax that has been increased over the decades, is both unjust and economically damaging.  All the groups of people who have become richer over the past four decades, at the expense of making everyone else poorer, have either all or much of their income exempt from it.  Today’s seniors, the richest generations in U.S. history, because their retirement income is exempt from the payroll tax (they also get special exemptions from the federal and state income taxes).  The very wealthy, because investment income is exempt from the payroll tax (dividend income and capital gains are also taxed at a lower rate under the federal income tax).  And those who get very rich non-wage benefits, generally unionized public employees – all that income is exempt from both the payroll tax and income taxes.

These groups have used their political power to capture a greater and greater share of total U.S. income, while the work income of ordinary private sector workers has been going down, generation by generation. With Millennials paid 25 percent less than Baby Boomers had been at the same point in their careers.

https://larrylittlefield.wordpress.com/2019/05/25/retirement-benefits-are-to-white-collar-crime-and-generational-inequity-what-handguns-are-to-street-crime/

And yet it is these less well off workers who are forced to carry the burden of Social Security and Medicare for the richer and more entitled generations that preceded them, the soaring cost of public employee pensions and health care, and the huge national debt run up by the multiple rounds for tax cuts for the rich.

So what would I propose to make federal taxes more equitable on a generational basis, and more progressive (with the better off paying more) as well? Replace the regressive, worker-only federal payroll tax with less regressive, everyone pays as they spend their money Value Added Tax (VAT).

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Don’t Increase the Federal Payroll Tax –Replace It With A Value Added Tax

If there is one tax that both Republicans and Democrats love to increase, it is the federal payroll tax, now at 15.3% of your paycheck, theoretically split between employers and employees with the “self-employed” paying both halves.  The biggest tax change in my lifetime took place in the early 1980s, at the start of my career.  With the biggest cut in the progressive income tax in history, followed by the biggest increase in the regressive payroll tax in history, during the Reagan Administration.  The income tax cut has been repeated twice since, to benefit the richest members of the richest generations in history at the expense of loading debt on the less well off generations to follow.  That has been a Republican policy.  But increasing the payroll tax – the base, the rate, or both — is a Democratic go-to as well, to increase or at least maintain Social Security benefits under various Democratic proposals, as noted here…

https://larrylittlefield.wordpress.com/2019/02/17/social-security-the-democrats-join-generation-greeds-theft-of-the-future-from-less-well-off-later-born-generations/

Or to pay for things like family leave, as in the state program in New York or the federal program proposed by New York Senator Gillibrand.

Why increase the payroll tax?  Because the types of people who have gotten richer and richer over the past 40 years, at the expense of those who have gotten poorer and poorer (to the point where their life expectancy is falling), don’t have to pay it, or as much of it.  Only regular workers do.  We are now in the special interest pandering, campaign contribution collecting portion of the 2020 Presidential campaign.  No wonder everyone wants higher payroll taxes – or, as alternative, even more in cuts in federal old age benefits for already-disadvantaged later-born generations only.

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Retirement Benefits Are to White Collar Crime and Generational Inequity What Handguns Are to Street Crime

Red State, Blue State, Democrats, Republicans, anti-tax advocates, public unions, public sector, private sector, federal, state and local and even in Europe.  Retirement and old age benefits are promises about the far off future, allowing any and all to use them as a tool to rip people off and make a getaway before the heist is discovered.  At the state and local government level, all over the U.S., one finds the generations now retired or about to retire promised themselves far more than they had been willing to pay for, leading to crises of various kinds. But always there is the assumption that the older generations that created the problem and benefitted from it can’t participate in sacrifices needed to prevent disaster.

The first response is always the union-friendly choice to drastically cut the pay and benefits of new hires, in order to offset the soaring cost of benefits for those cashing in and moving out.  Screwing the millennials as part of the “screw the newbie, flee to Florida” cycle that goes on and on.  “If you don’t like it, don’t take the job; take some other job that also pays 25 percent less than the Baby Boomers were paid for the same work,” as Federal Reserve Bank of New York research has shown.

https://www.wsj.com/articles/playing-catch-up-in-the-game-of-life-millennials-approach-middle-age-in-crisis-11558290908

But when that isn’t enough, the next proposal is a “pension freeze.” Middle-aged workers, now mostly the last of the Boomers in those in Generation X, get to keep the pension benefits they have earned so far, but are not allowed to accrue any new benefits at the rate they were promised.  They are allowed to contribute to a 401K instead.  “If you don’t like it, quit and take another job for 15 or 20 percent less than most Boomers and members of the Silent Generation were paid, if someone will hire you.”

That’s fair, isn’t it?  No it is not!

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Generation Greed: Away from New York, Is Omerta Starting to Crack?

You have to believe in facts. Without facts there’s no basis for cooperation. If I say this is a podium and you say this is an elephant, it’s going to be hard for us to cooperate.” — Barack Obama

It is amazing the way effect of decades of public policies and economic and social trends, all to the benefit of some generations at the expense of others, stays out of the news.  Even as, anything, everything else is blamed for the situation so many people find themselves in.  For the most part what you get is silence, and an attempt to change the subject to anything, everything else.   People and groups who on the surface are at war with each other, and unable to cooperate, somehow all agree to keep certain facts out of the public discussion.

If you look closely enough, however, some cracks are beginning to appear in the Omerta.  The fact that Generation Greed is leaving those coming after so much worse off hasn’t gone viral, but it is beginning to bubble up under the surface.   The rest of this post will quote from some examples I’ve come across.

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What the Social Security Administration Knows, and Could Tell Us

Last December I wrote a quick post expressing concern that the U.S. might have reached peak transparency, now that the Democratic Party, as a result of the rising burden of public employee pensions, has turned against the dissemination of accurate, factual information about government and society. Joining the Republicans, who have been against providing access to such information for a couple of decades.

https://larrylittlefield.wordpress.com/2016/12/10/nobodys-gonna-pay-you-to-tell-the-truth-or-worse/

Since then I’ve seen the same concern expressed by many others, now that Donald Trump, hardly Mr. Transparency himself, is President, with reports of government bureaucrats spiriting away statistical information to a secure location before the change of regime, lest it be deleted. Even so, I’m always on the hunt for alternative sources of actual facts, and this January I happened to think of one – the Social Security Administration. And wrote a letter to the Deputy Chief of the Office of Long-Range Actuarial Estimates, the office “responsible for estimates for up to 75 years in the future, based on economic/demographic assumptions developed for the annual Trustees Report.”

I didn’t receive an answer. Given that people need to keep their jobs until they can collect their pensions, and having worked for the government for 20 years myself and knowing what it’s like, I didn’t expect one. It is fair to say that I wrote the letter that follows for the purpose of publishing it on this blog after a reasonable period of waiting for a response had passed.

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Generational Equity and The 25 Percent

Here is food for thought. In 1978 I earned the minimum wage: $2.65 per hour. Adjusted for inflation that is $9.68. The current minimum wage of $7.25 is therefore about 25 percent lower. So have those earning the minimum wage become that much worse off relative to most Americans? After thinking about it, perhaps not. Perhaps that 25 percent decrease is just about typical. In fact, it suddenly hit me that I had seen something like a 25 percent decrease in well being elsewhere, in other contexts.

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The Phony Federal Campaign and Our Real Future

It is once again time for a major federal election, and I am once again doing my best to avoid listening to the nonsense being spoken by the Presidential candidates. I have not watched any of the past debates, and based on what I hear don’t want to watch any future debates either. Despite our nation’s challenges, the candidates are promising to hand out more goodies, and promising the people who would benefit would never pay for them. Bernie Sanders claims that everyone can have everything, and the only people to pay would be the rich. Ignoring the fact that the Bush tax cut for the rich has already been repealed, and we are still facing a national fiscal disaster. Republicans are once again promising tax cuts for the rich, and promising that the only people who would face sacrifices would be the poor and those in younger generations. The same people Republicans have made worse off in federal policy for the past 35 years, with no acknowledgment of that fact.

Only Donald Trump speaks as if he realizes how much worse off the younger generations following in the wake of Generation Greed actually are. But he doesn’t really explain it, almost certainly doesn’t understand it, and instead panders by creating scapegoats, blaming the Chinese, Mexicans and Muslims for all of the nation’s problems instead. The way the poor, immigrants and those living in older central cities were blamed 20 years ago. And he promises that all people have to do is elect him, and the unsustainable consumer debt-driven phony economy that floated his casinos, before they went under, will somehow return. None of this has anything to do with anything any of them actually would, or could, do if elected. So rather than listen to what they say, I have once again tabulated some federal budget data to what the federal government has actually done over the past 35 years-plus. To see how the choices of the past have affected our real future.

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Reprised — Social Security: The Generational Betrayal

Back in 2007 I wrote a series of posts on the future of Social Security on the group Room Eight blog. Later, when writing about generational equity in general, I summarized those posts and provided links back to them. Links to the Room Eight blog, however, no longer work, and the statistics WordPress makes available to me indicate that people are trying to follow those links and getting nowhere. So, while waiting for detailed finance data from the 2012 Census of Governments to be released (and some errors to be corrected), I’ve decided to re-post these essays, adding some additional commentary in italics.

Some broader background. While some public employees, notably those in New York and California, have had their pensions, already the richest, retroactively increased compared with what they were promised when hired, most of those in the generations born after 1957 or so have had defined benefit pensions taken away from them. These were replaced by the falsely named “defined contribution plans,” notably the 401K. They are actually “undefined contribution plans,” and with each recession more and more employers have cut their contributions to zero or close to it. This has been a massive cut in what most people were paid, and workers perhaps should have responded by saving 25 percent or more of their after-tax income for retirement, crushing consumer spending in the economy, to ensure their old age. But instead, induced by advertising, they kept right on spending more than they could afford, and borrowing on top of it. Millions will thus face a vastly diminished life in retirement, with only Social Security to keep them out of extreme poverty. Or perhaps not, because the younger generations made poorer in the private economy by the “one percent” have also been made poorer in the public sector by Generation Greed. The first of the original posts follows after the break.

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