Posted on 02/19/2003 6:15:53 AM PST by SJackson
A new study from the Federal Reserve says that the wealth gap between rich and poor grew wider as the stock market boomed in the late 1990s.
The most obvious reason is that more than half of all American families now own stocks either directly or indirectly -- but almost half don't. That means that when the stock market rises, the gap between the stock-owning half and the non-investing half rises.
How to close the wealth gap? Bring more Americans into the investor class and let them pass their hard-earned money onto their children.
President Bush's plan to let younger workers invest their Social Security taxes in stocks, bonds, or other private assets would do that. Social Security modernization would not just help all working Americans become investors, it would help end the Social Security death tax.
Pollsters are often mystified by the unpopularity of the estate tax -- lately renamed the "death tax." How, they ask, can so many people object to a tax that falls on only a few rich people? They have a point.
What everyone seems to have missed, though, is that there is a death tax that affects every working American. It's called Social Security.
Every year, every American worker pays 12.4 percent of his income to the Social Security system. Workers may not realize this because the money is taken out of their paychecks in advance. (That's what FICA means on your paycheck.) And half the tax is concealed by pretending that the employer pays it. But economists agree that a tax on wages ultimately comes out of the worker's pocket.
When a worker retires after paying 12.4 percent of wages for years, he gets a monthly Social Security check. The return isn't very good, but at least there's a check (so far). But look what happens when the worker dies: After paying in for all those years, the worker owns nothing. He can't leave anything to his children.
In short, Social Security imposes a 100 percent death tax on every working American. The money he "saved" all those years disappears.
And there's considerable money involved. Take a thirty-something couple earning $54,000 a year. Social Security promises to pay them about $27,000 a year (in today's dollars) when they retire -- if Social Security still has any money. But when they die, that income stops, and there's no estate to leave to their children. (Of course they may have saved other assets, but the Social Security assets would not survive them.)
On the other hand, if they had been putting those Social Security taxes into a retirement fund divided between stocks and bonds, they could expect to have nearly $1 million in their personal retirement account at retirement. That fund would pay them an annual income more than double what Social Security promises, and they would still have $1 million to leave to their children -- or their church or favorite charity -- at their deaths.
If that couple invested solely in stocks, though exposed to greater short-term risk, they could expect to have even more money -- $1.6 million. That's what the Social Security death tax costs a working couple. If they were allowed to put 12.4 percent of their income into real investments, they could accumulate as much as $1 million or more -- and the Social Security death tax takes it all.
Reform that would allow younger workers to put their Social Security taxes into personal retirement accounts would end the Social Security death tax -- the tax that hits every working American -- and dramatically narrow the wealth gap.
David Boaz is executive vice president of the Cato Institute and editor of "Toward Liberty: The Idea That Is Changing the World."
This article first appeared FoxNews. com.
It is precisely because it falls on only a few people that it is unfair. Why don't we institute a 90% income tax on major league baseball players? They are almost all very rich, and there are fewer than a thousand of them. In fact, lets narrow it down to pitchers. Relief pitchers. Left-handed relief pitchers.
IMO, Changes will never happen, the government will never attach funds to individual accounts which can be passed on to heirs. Over the last 50 years the Gov. has used our social security to start and fund massive welfare programs such as HUD, Dept of Agriculture, Dept of Education, etc. by using SS revenues.
Now its time to pay the piper and we taxpayers will pay for our politicians gross mismanagement.
Also you're forgetting there is an important principal invovled in privitizing S.S. : INDEPENDENCE! Sorry but the less money big daddy govt. can take from me is all the better as well.
You miss the point. I'm sure Bush would prefer to allow individuals to invest as much of the 12% as they wish into such a private retirement fund. The low percentage is to satisfy the DEMOCRATS!!! Can you say INCREMENTALISM??
The key point is to make the breakthrough to establish the validity of the concept of such a private-based retirement fund instead of the socialist Ponzi game that is currently Social Security. Once established, the allowed percentage can be increased over time. After all, this tactic is exactly what the Democrats have been using for years to limit our freedom--why can't we use it to recover it.
And the gap grew narrower after the stock market tanked after March 2000.
There may be lot's of things better than the current Social Security system but stock market bubbles aren't one of them.
This is false. There is NO special govt. account for Kantianburke in the S.S. office. The money taken out of my paycheck is directed towards today's beneficiaries. Thats why most folks are confident in 40 years, but not now, S.S. will be bankrupt as the ratio of workers to payees will be unable to be balanced. Even though one would have paid into the system for so long.
Maybe a payroll tax cut would be in order if those affected by this would stop complaining about government giveaways and start complaining about government TAKEaways!
Using your 2% example (which is probably a bit high), a $50,000 worker would contribute $1,000 to a privatized account, $2,200 to FICA, rather than $3,200 to FICA. There would be a corresponding reduction in his “guaranteed” benefits, to be offset by the privatized account. His employers contribution might or might not be treated in the same manner. Of course the benefit cut is coming, privitazation or not.
You said:
"12.4% of 50,000 is 6,200
2% of 6,200 is $124.00"
Here is what really happens under President Bush's proposal:
2% of $50,000 is $1,000 -- which goes into the worker's personal investment account and is owned by the worker, like a 401K plan.
The remaining $5,200 goes to the Social Security Administration to pay current benefits.
$1,000 per year in a tax-FRee savings environment at compound interest rates over a person's working lifetime will grow into a very handsome retirement fundk, owned by the individual.
Click here to calculate the financial rewards of SS privatization.
I think you will be impressed with the difference in retirement income and wealth creation between the current Ponzi Scheme Social Security and a partial (I like full) Social Security privatization.
Over time, the theory is your share (of your money) will increase while the govmt's share decreases until only the life-long welfare/unemployed are left to be supported by the rest of the working folks.
Of course, I expect the Demoncrats to say this idea cuts SS 17% (one sixth) and will be the cause of all the benefit reductions that will force old folks to eat dog food. (Side note - Dog food is not cheap - about $1.80 a pound for wet).
Most of the plans I've seen are clear on that. And you're right that 2% of 6.4% (.0013%) would be useless.
The Cato Institute has a good site covering a number of the privatization plans you might want to check out. As an example, their Calculator which lets you compare different plans, allows you to choose a contribution rate of 2% to 10% of your salary, not the contribution rate . From their calculator instructions
=====================================================
How would the various policy options affect YOUR retirement income?
The various Social Security reform proposals being discussed differ in the amount of your salary you are allowed to invest privately. Some proposals would allow you to invest all of your payroll taxes (generally not including the portion used for disability or survivors' benefits), whie others would allow you to invest as little as two percentage points of your payroll tax. The options below will allow you to see how different reform proposals would affect your retirement income.
2% - 3%- 4%- 5% - 6.2%- 10%
(Note: The total Social Security payroll tax is 12.4 percent of your income. Half is paid by you, half by your employer. Of this, approximately 2.4 percentage points are used to fund disability and survivors benefits. The remaining 10 percent funds retirement benefits. Therefore, selecting 10 percent would approximate full privatization.
Wrong, SSI is a TAX. The US Government is under NO obligation to pay you a penny irregardless of how much you paid in.
Atleast that is what the courts have ruled.
I think your concern is caused more by the fearmongering done about privatization plans than the plans themselves.
First, the status quo, there WILL be a reduction in benefits in a couple of decades. Will they reduce benefits across the board, slowing the growth, increase the retirement age, or means test it, denying benefits to the “rich”, as Clinton essentially did by taxing social security, I’d guess the last two. If you’re “rich”, your benefits could go down under the present plan, as they did under Clinton. If you’re not “rich”, they probably wouldn’t.
None ot the privatization plans I’ve seen (or that would have ANY chance of passing) would reduce benefits for the disabled (I know that’s not you), or for American’s over about 50 or 55 today.
Essentially they’re designed to provide younger workers to effectively offset that decrease that IS coming with higher market returns.
Using a highly simplistic example of your example of the $50,000 worker, he might divert a quarter of his contribtributions ($800 of $3,200 per year), accepting for example a 35% reduction in his “guaranteed” retirement income, in the expectation that over time his private account will offset the reduction in income which is coming.
The big problem with these plans politically isn’t financial, they would work, it’s the fact that politically it forces us to stare the eventual insolvency of social security in the face, a task neither party has been up to as yet. And, of course, there's no reason privatization couldn't be completely voluntary, probably the fairest alternative for those in the 40 to 60 age range.
Good point. And I might add that when companies subsidize health care coverage for their employees, it comes out of the worker's pockets as well. When I first went into management 10 years ago, the "fringe" benefits for each employee was 28% of their salary. Now it is 40% of an employee's salary. What this means that if an employee receives a salary of $40,000, he is actually receiving $56,000 in salary, because the employer is paying $16,000 of it in the form of FICA, health and dental, insurance, etc. For those who wonder why wages appear to be stagnant, this is why.
http://www.forourgrandchildren.tv/
To ensure that Social Security is there to provide for our children, grandchildren and the generations to come, The Committee For Good Common Sense, a non-partisan civic group, has created For Our Grandchildren. This new initiative is committed to saving and strengthening Social Security by giving today's workers the option to invest a portion of their Social Security payroll taxes into a Personal Retirement Account (PRA).
The need for such reform has never been greater. According to the 2001 Social Security Trustee's Report, the cornerstone of a secure retirement for millions of Americans is about to run out of money. In the year 2015, when the Baby Boomers begin to retire, Social Security will start spending more money than it takes in. And by 2038, Social Security will completely broke. No one wants to see taxes raised, debt increased, or retirement benefits cut or eliminated, but it could happen. The Supreme Court has ruled that any money paid into Social Security belongs to the government -- and not the taxpayers. In fact, none of us has a legally protected right to our benefits, and Congress is free to reduce or even eliminate benefits for any group of Americans.
A Project of The Committee for Good Common Sense P.0. Box 3539, Washington, DC 20007 202-337-4990 Copyright © 2001, The Committee for Good Common Sense
You apology is accepted in advance! :)
Seems to me during the 2000-2003 the wealth gap should have shrunk by about 8 trillion dollars. I think it should be time to have a "rich-aid" charity concert to help all the rich people who have become poor in the stock market melt down.
Computers, TVs, and many, many other technological products.
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