Social security (well, the old-age and survivors portion; disability insurance is a little different) transfers wealth from the young to the old, not the rich to the poor.
The fact politicans raid the social security fund and bleed it dry shifting the burden to the young isnt the design
Social Security is not wealth transferred young to old. Its wealth stored in govt care and because the govt is irresponsible the youth has to be taxed to make up the difference
Social Security started out as an inter-generational wealth transfer and it still is. The original beneficiaries received benefits without paying in and everybody since then has been paying for their parents.
The only reason the "trust fund" has anything in it at all is the population expansion of the baby boom, which is drawing itself down as they retire. And there was never any money to begin with -- it's all government paper. The government collected social security tax, lent the money to itself and immediately spent it. Now it owes itself money. "But it's the social security administration's money" doesn't change anything about where it ultimately comes from -- present day taxpayers.
In treasury bonds. Whether present day taxpayers pay the money from withholding taxes to cover the bonds or social security taxes directly, it still comes from present day taxpayers.
And even that $2.5T is substantially less than the amount they are projected to pay out.
It isn't a matter of investing it in something else. There was never actually any surplus to begin with. If the government had done anything other than lend it to itself, they wouldn't have had that money to fund the programs they voted for. Then they would either have had to pay the full amount from additional taxes or borrow the money and pay interest, which over that time period was a >6% rate and would have been even higher if that amount of debt had actually been issued into the bond market. I leave it as an exercise to the reader to calculate what percentage of the "trust fund" total would have had to be paid in interest at those rates over half a century if they had actually paid it. Spoiler alert, it's most of the total.
The net inter-generational transfer is actually substantially more than that, because the true measure of the inter-generational transfer is the debt itself, which exceeds even what's held by social security and medicare. That is what they spent without paying for and what their kids inherit.
If they hadn't spent more than they paid there wouldn't be trillions in US government bonds for the "trust fund" to hold. That's the only way to have actually paid for it -- have held a net surplus of that amount, so you pass on net assets rather than net debt. And that isn't what happened.
It isn't. The "trust fund" is an accounting trick to create something from nothing.
Suppose there isn't enough money in the "trust fund" and we wanted to add some without raising taxes, reducing spending or issuing any new bonds into the market (which would consume liquidity and raise interest rates). Simple, you write some new bonds and give them directly to the social security administration. Now it has "more assets" -- but you haven't actually funded anything because you have an equal amount of debt.
Sorry people are downvoting you. I really hate this feature - I just want you to know I appreciate your comment and if I were in charge I'd kill this feature.
thank you kindly. i'm not a fan of HN down voting either. i try not to do it at all. (i think my total number of down votes can be counted on one hand.)
All benefits for lower income people are subsidies for low wage employers. A tax credit has the benefit of being particularly efficient and with a minimum of bureaucracy, as compared with the typical highly distorting programs like housing or mortgage interest subsides, federally-backed student loans or health insurance subsidies that inflate rents and housing/education/healthcare costs.
It distorts the market is my point and when you hit a recession and cant keep pace with inflation it can lead to unrest - its called out in a recent guardian piece on the yellow vest movement.
Tax credits are cash. That's why they don't distort markets. If you give everyone extra money they can only use for education, education costs go up. If you give them extra money they can only use for housing, housing costs go up. Up compared to everything else -- like wages. Which is a problem.
If you give them the money as cash, nothing is disproportionately affected because the money can be used for anything. There is no inherent reason it would even have to cause inflation, since general inflation is affected by multiple other independent factors, like interest rates, that can be set independently of any tax credits.
The problems in France are caused by just the opposite -- they have many rules that collectively make it very risky and expensive to hire employees, resulting in employers who are wary to hire and a high unemployment rate. Which erodes the tax base, reducing the resources the government has for social programs while inducing demand for them from all of the unemployed people and lower income working people paying high ratios of taxes to benefits to compensate for those unable to find work, leading to widespread discontent and protests.
They would do well to abandon the inefficient collage of price controls and subsidies in favor of direct cash transfer payments from the rich to the poor.
It isn't the companies that are only viable due to the subsidy. The existence of Walmart doesn't depend on a specific unskilled labor price -- if unskilled labor was more scarce they would turn to more automation or pay higher wages and have to charge higher prices, but they would still exist.
The problem is the people who are only viable with government intervention, because the market price of their labor isn't enough to make a living. Some of that is a result of government action in other ways (e.g. policies that cause high housing/education/healthcare costs), but none of those are likely to be solved overnight.
Which means there will be calls to intervene in the market somehow so they can make a living.
And just giving them the money is the least distorting way to achieve the necessary result. It doesn't take disproportionately from the employers who are actually willing to hire unskilled workers. It doesn't cause unemployment for anyone whose labor value really can't command a living wage given the aforementioned as-yet-unfixed policy inefficiencies. It doesn't have an abrupt cutoff where anyone who makes less than a minimum wage gets a 100% subsidy up to the minimum wage but anyone who makes a penny more gets nothing, even though they're almost equally as shafted by high housing costs etc. It just does the exact thing necessary to patch the problem until the other issues can be resolved in the long term.
> The problem is the people who are only viable with government intervention, because the market price of their labor isn't enough to make a living.
The government actively intervenes against the viability of labor by taxing labor income more heavily than capital income (both by the preferential tax rate for capitalism gains compared to “regular” income, and also because labor income, especially well into the middle class range, faces additional taxes—payroll taxes—on top of the taxation of “regular” income.)
Do we need UBI? Maybe (I'm inclined to say yes.) But first we need government to stop intervening against the viability of labor.
> The government actively intervenes against the viability of labor by taxing labor income more heavily than capital income (both by the preferential tax rate for capitalism gains compared to “regular” income
The reason the long-term capital gains rate is lower than the top earned income rate is inflation. If you buy an asset for $100, there is 20% inflation over some years and you sell it for $130, your actual profit, the real increase in the value of your asset, is $10 rather than $30. This is why the lower rate doesn't apply for short-term investments.
What they ought to do is to calculate the capital gain in light of inflation (i.e. adjust the tax basis for inflation since the purchase date) and then use the same tax rates as for earned income. But the way they are doing it isn't exactly favoring long-term capital income. You can currently lose real value and end up owing capital gains taxes because the reduction in real value was less than the inflation over the period you held the asset.
Which isn't particularly relevant for the people just scraping by anyway. The long-term capital gains rate is lower than the highest earned income rate, but it's not lower than the rates low income people pay.
> and also because labor income, especially well into the middle class range, faces additional taxes—payroll taxes—on top of the taxation of “regular” income.)
Yes, the way payroll taxes are structured is dumb. Especially the cap past which rich people no longer have to pay them. (And the fact that social security makes higher payments to rich people rather than the same for everyone.)
But this is not really the main problem either. FICA is a total of ~15%, including the employer's portion. That's not nothing, and we should fix it, but the scope of the problem is larger than a 15% difference.
That's only for determining who gets certain tax deductions. Minors still have to pay their own taxes and file their own tax return (if they make more than the threshold for filing) even if they are claimed on their parents taxes. The only way you can have multiple people paying or filing taxes together is if they are married.
The >40% is of households. Children typically don't have their own households. And retirees can still pay income tax, both because social security is taxable and because they're making withdrawals from tax-deferred retirement accounts. It's not at all uncommon for higher income retirees to pay more income tax than lower income working people (as it should be, but the point stands that the retirees don't explain the total).
> Over 40 percent of Americans don't pay ANY Federal income tax.
> So, by natural law, doesn't any tax cut not benefit them?
Nope, consider a $1,000 refundable tax credit for anyone with under $5,000 AGI. Its a tax cut, and everyone who doesn't pay income tax because of low income plus some of the poorest who do are the only beneficiaries.
I think it's arguable that a tax credit is not a tax cut, precisely because it doesn't necessarily reduce taxes paid but rather can return money not paid.
The first option would benefit everyone the same, but only if it was refundable.
The second would benefit the rich disproportionately, because deductions save you the deduction x your marginal rate, and so anyone paying the highest marginal rate will save more from a deduction than someone paying a low (or zero) marginal rate.
Depends on how rich they are, especially now with sharp limits on deductions of taxes and mortgage interest. You can also time it so you bunch your itemized deductions for multiple years into a single year and then take the standard deduction in the other years.
What the article is saying is that the rich had their taxes reduced by a far larger proportion of their income than did everyone else. Which was exactly what Trump and the Republicans were intending.
And they said this would be great for the whole country because it would lead to huge capital investments that would in turn lead to economic benefits for everyone. But that simply hasn't happened.
> With any tax cut, the rich will benefit the most because they pay most of the taxes.
Drop the 10% bracket to zero, increase the 12% bracket to, what, 15.25%. And you get a tax cut for everyone whose income is entirely in the 10% and (except at the exact top dollar amount of the bracket) 12% brackets, and no one else sees a change.
> Drop the 10% bracket to zero, increase the 12% bracket to, what, 15.25%. And you get a tax cut for everyone whose income is entirely in the 10% and (except at the exact top dollar amount of the bracket) 12% brackets, and no one else sees a change.
Then it's not a tax cut for the middle class. You have it phasing entirely out right around the median income, so someone at the median gets approximately nothing.
You could do the same thing higher up, e.g. drop the 10% bracket to zero and compensate by raising the rates for the brackets that start at the median income rather than ending there, but then it's a much larger reduction in revenue specifically because the middle class gets it too.
If you really wanted a (more affordable) tax cut specifically for the middle class, you could cut the rate between the 25th and 50th percentiles to 10% (rather than setting the existing 10% rate to zero) and compensate by raising the rate between the 50th and 75th percentiles. That would be an actual tax cut for the middle class.
that makes sense because the top brackets pay the highest percentage to begin with, of around 39% . it does not make much sense to give the lowest % brackets the same % as highest bracket, and the lowest bracket has a negative effective rate anyway.
>The tax law limits or eliminates dozens of itemized deductions, including for SALT, mortgage interest, home office expenses and fund management fees.
Wait, they got rid of mortgage interest?
Since the internet told me to see a CPA, I did. And I was not happy at how limited his knowledge base was. I corrected him a few times during our meeting. We had a conversation about Mortgage Interest and this never came up.
Isnt the point of the certification to be the expert? I'm just a math guy that can read.
For primary residencies, you can now only deduct interest on up to $750,000 in debt (i.e. your mortgage principle) rather than the $1,000,000 if you had bought your home before 2018.
In short, most people won't be affected, unless you own a mansion or a home in an overpriced market such as SF or NYC.
Keep in mind that the standard deduction also doubled, so depending on your own situation, you may not even need to itemize your deductions, such as your mortgage interest.
This seems backwards to me. Wouldn't a better option be to deduct interest on any house worth less than 750k or some lower number as that would help the middle class much more while also encouraging smaller home purchases and affordability?
Correct. The $750k number is the cap on the debt for which you can deduct paid interest from. So, if you borrow 1 million dollars to buy a house, you only get to deduct 3/4 of the interest now, instead of the full amount. Interest on smaller loans continues to be fully deductible.
Doubling the standard deduction may have a perverse inventive against borrowing less (or simply buying cheaper homes) as, depending on your situation, it may be better than itemizing.
I think it's debatable whether the mortgage interest deduction really plays heavily into a noticeable amount of people's decision to buy or not; unless you are having a hard time deciding to buy or rent, there are a lot of other, larger factors.
Finally, I believe that doubling the standard deduction and eliminating a number of other deductions is a small, first step towards creating a simpler tax code- such a code wouldn't be as useful for social engineering (help middle class buy more small homes) but there are plenty of benefits, too.
It certainly factors into what people are willing to pay each month, which is the actual thing they think about when they are figuring out how big a mortgage they can handle.
For anyone else curious, the reference to the home office deduction being eliminated is only for employees. The home office deduction remains unchanged for self-employed folks.
> Isnt the point of the certification to be the expert? I'm just a math guy that can read.
Enrolled Agents (EA) are very good on average as tax accountants. Not perfect, but if talk to them mid-reporting period and they'll have heard of new rules.
Beyond that, what you need to know about "professionals":
1) The job of a CPA is to collect their fees.
2) The job of a lawyer is to collect their fees.
3) "Professionals" rank larger entities ahead of individuals in fees and advancement.
Is it really a "middle-class tax cut" when, "one in 20 families face a higher tax burden this year... [but] 7.3 percent of middle-income groups."
That means that the middle class have a 146% chance of having a tax increase relative to the median. Of course you could claim that the upper middle class got more $ cut than the lower middle class or some such thing.
65 comments
[ 3.8 ms ] story [ 12.6 ms ] threadsort of like saying "the winners are winning."
the rich are pretty much always winning.
The fact politicans raid the social security fund and bleed it dry shifting the burden to the young isnt the design
Social Security is not wealth transferred young to old. Its wealth stored in govt care and because the govt is irresponsible the youth has to be taxed to make up the difference
The only reason the "trust fund" has anything in it at all is the population expansion of the baby boom, which is drawing itself down as they retire. And there was never any money to begin with -- it's all government paper. The government collected social security tax, lent the money to itself and immediately spent it. Now it owes itself money. "But it's the social security administration's money" doesn't change anything about where it ultimately comes from -- present day taxpayers.
And even that $2.5T is substantially less than the amount they are projected to pay out.
The net inter-generational transfer is actually substantially more than that, because the true measure of the inter-generational transfer is the debt itself, which exceeds even what's held by social security and medicare. That is what they spent without paying for and what their kids inherit.
If they hadn't spent more than they paid there wouldn't be trillions in US government bonds for the "trust fund" to hold. That's the only way to have actually paid for it -- have held a net surplus of that amount, so you pass on net assets rather than net debt. And that isn't what happened.
Suppose there isn't enough money in the "trust fund" and we wanted to add some without raising taxes, reducing spending or issuing any new bonds into the market (which would consume liquidity and raise interest rates). Simple, you write some new bonds and give them directly to the social security administration. Now it has "more assets" -- but you haven't actually funded anything because you have an equal amount of debt.
Examples:
1) A credit of $1,000 per taxpayer.
2) Increase the standard deduction by $1,000.
And countless others.
Tax cuts benefit the rich by design, not due to some natural law.
So, by natural law, doesn't any tax cut not benefit them?
This includes most of the countries poorest citizens.
If you give them the money as cash, nothing is disproportionately affected because the money can be used for anything. There is no inherent reason it would even have to cause inflation, since general inflation is affected by multiple other independent factors, like interest rates, that can be set independently of any tax credits.
The problems in France are caused by just the opposite -- they have many rules that collectively make it very risky and expensive to hire employees, resulting in employers who are wary to hire and a high unemployment rate. Which erodes the tax base, reducing the resources the government has for social programs while inducing demand for them from all of the unemployed people and lower income working people paying high ratios of taxes to benefits to compensate for those unable to find work, leading to widespread discontent and protests.
They would do well to abandon the inefficient collage of price controls and subsidies in favor of direct cash transfer payments from the rich to the poor.
The problem is the people who are only viable with government intervention, because the market price of their labor isn't enough to make a living. Some of that is a result of government action in other ways (e.g. policies that cause high housing/education/healthcare costs), but none of those are likely to be solved overnight.
Which means there will be calls to intervene in the market somehow so they can make a living.
And just giving them the money is the least distorting way to achieve the necessary result. It doesn't take disproportionately from the employers who are actually willing to hire unskilled workers. It doesn't cause unemployment for anyone whose labor value really can't command a living wage given the aforementioned as-yet-unfixed policy inefficiencies. It doesn't have an abrupt cutoff where anyone who makes less than a minimum wage gets a 100% subsidy up to the minimum wage but anyone who makes a penny more gets nothing, even though they're almost equally as shafted by high housing costs etc. It just does the exact thing necessary to patch the problem until the other issues can be resolved in the long term.
The government actively intervenes against the viability of labor by taxing labor income more heavily than capital income (both by the preferential tax rate for capitalism gains compared to “regular” income, and also because labor income, especially well into the middle class range, faces additional taxes—payroll taxes—on top of the taxation of “regular” income.)
Do we need UBI? Maybe (I'm inclined to say yes.) But first we need government to stop intervening against the viability of labor.
The reason the long-term capital gains rate is lower than the top earned income rate is inflation. If you buy an asset for $100, there is 20% inflation over some years and you sell it for $130, your actual profit, the real increase in the value of your asset, is $10 rather than $30. This is why the lower rate doesn't apply for short-term investments.
What they ought to do is to calculate the capital gain in light of inflation (i.e. adjust the tax basis for inflation since the purchase date) and then use the same tax rates as for earned income. But the way they are doing it isn't exactly favoring long-term capital income. You can currently lose real value and end up owing capital gains taxes because the reduction in real value was less than the inflation over the period you held the asset.
Which isn't particularly relevant for the people just scraping by anyway. The long-term capital gains rate is lower than the highest earned income rate, but it's not lower than the rates low income people pay.
> and also because labor income, especially well into the middle class range, faces additional taxes—payroll taxes—on top of the taxation of “regular” income.)
Yes, the way payroll taxes are structured is dumb. Especially the cap past which rich people no longer have to pay them. (And the fact that social security makes higher payments to rich people rather than the same for everyone.)
But this is not really the main problem either. FICA is a total of ~15%, including the employer's portion. That's not nothing, and we should fix it, but the scope of the problem is larger than a 15% difference.
> So, by natural law, doesn't any tax cut not benefit them?
Nope, consider a $1,000 refundable tax credit for anyone with under $5,000 AGI. Its a tax cut, and everyone who doesn't pay income tax because of low income plus some of the poorest who do are the only beneficiaries.
The second would benefit the rich disproportionately, because deductions save you the deduction x your marginal rate, and so anyone paying the highest marginal rate will save more from a deduction than someone paying a low (or zero) marginal rate.
And they said this would be great for the whole country because it would lead to huge capital investments that would in turn lead to economic benefits for everyone. But that simply hasn't happened.
Drop the 10% bracket to zero, increase the 12% bracket to, what, 15.25%. And you get a tax cut for everyone whose income is entirely in the 10% and (except at the exact top dollar amount of the bracket) 12% brackets, and no one else sees a change.
Then it's not a tax cut for the middle class. You have it phasing entirely out right around the median income, so someone at the median gets approximately nothing.
You could do the same thing higher up, e.g. drop the 10% bracket to zero and compensate by raising the rates for the brackets that start at the median income rather than ending there, but then it's a much larger reduction in revenue specifically because the middle class gets it too.
If you really wanted a (more affordable) tax cut specifically for the middle class, you could cut the rate between the 25th and 50th percentiles to 10% (rather than setting the existing 10% rate to zero) and compensate by raising the rate between the 50th and 75th percentiles. That would be an actual tax cut for the middle class.
The claim I was responding to—as should be obvious since I quoted it—had nothing to do with the middle class:
>> With any tax cut, the rich will benefit the most because they pay most of the taxes.
But you can do a similar thing to target any income group you want, while excluding any you don't.
Wants to pull out of Syria? WTF I love war now.
https://news.ycombinator.com/newsguidelines.html
Wait, they got rid of mortgage interest?
Since the internet told me to see a CPA, I did. And I was not happy at how limited his knowledge base was. I corrected him a few times during our meeting. We had a conversation about Mortgage Interest and this never came up.
Isnt the point of the certification to be the expert? I'm just a math guy that can read.
Also, get a personal referral for a CPA.
In short, most people won't be affected, unless you own a mansion or a home in an overpriced market such as SF or NYC.
Keep in mind that the standard deduction also doubled, so depending on your own situation, you may not even need to itemize your deductions, such as your mortgage interest.
Doubling the standard deduction may have a perverse inventive against borrowing less (or simply buying cheaper homes) as, depending on your situation, it may be better than itemizing.
I think it's debatable whether the mortgage interest deduction really plays heavily into a noticeable amount of people's decision to buy or not; unless you are having a hard time deciding to buy or rent, there are a lot of other, larger factors.
Finally, I believe that doubling the standard deduction and eliminating a number of other deductions is a small, first step towards creating a simpler tax code- such a code wouldn't be as useful for social engineering (help middle class buy more small homes) but there are plenty of benefits, too.
Enrolled Agents (EA) are very good on average as tax accountants. Not perfect, but if talk to them mid-reporting period and they'll have heard of new rules.
Beyond that, what you need to know about "professionals":
1) The job of a CPA is to collect their fees.
2) The job of a lawyer is to collect their fees.
3) "Professionals" rank larger entities ahead of individuals in fees and advancement.
That means that the middle class have a 146% chance of having a tax increase relative to the median. Of course you could claim that the upper middle class got more $ cut than the lower middle class or some such thing.