Time to Rethink How Social Security is a Poor Person’s Tax and a Payout For the Rich: A Reverse Robin Hood Tax!

How Social Security Takes From The Poor And Gives To The Rich (Excerpt From Article by Stephen Stafford)

Chris Matthews is wrong: Social Security is not a fabulous anti-poverty program. In fact, it tends to take money from poorer people and give it to richer people.

Here’s Where It Gets Reverse Robin Hood

Which groups tend to live the longest? The wealthy, and whites. That is why Third Way, hardly a right-wing institution, released a report recently that says expanding Social Security, along with other proposals from Sanders (such as free college) would actually disproportionately benefit the rich, since they are more likely to live longer and to go to college than the poor are.

The typical U.S. household headed by a senior citizen has a net worth 47 times greater than one headed by someone younger than 35.

Nearly two-thirds of Social Security payments go to people whose earnings place them in the top 40 percent; and more than one-third goes to the top 20 percent. White men with more than 16 years of schooling on average live up to 14 years longer than black men who have fewer than 12 years of education. That means the white, educated men get more Social Security and Medicare.

Social Security is a direct transfer payment, but it is in aggregate a regressive transfer. Compare, for example, the overall poverty rate (roughly 15 percent) with the poverty rate among seniors (10 percent). The younger you are, the more likely you are to be poor: children have the highest rate at a galling 21 percent, followed by working-age adults at 13.5 percent.

The older you are, the less likely you are to be poor. According to a 2011 Congressional Budget Office report, the typical U.S. household headed by a senior citizen has a net worth 47 times greater than one headed by someone younger than 35. According to the Urban Institute, a typical two-earner couple receives nearly a quarter of a million dollars more in Social Security benefits than they paid in Social Security taxes. One Politifact piece from 2013 showed that on average government spends more than double on each senior citizen than it spends on each child.

Social Security taxes are the highest taxes most workers pay, and Social Security is the largest item on the federal ledger at over $800 billion. But effectiveness is measured not only by output; we ought to care about efficiency. While one in ten seniors lives in poverty, Social Security spends enough money to give every senior enough money to have an income above the poverty line.

Pious myths prevent real reforms that can actually make things better. As long the conventional wisdom is such that someone with the influence of Chris Matthews can casually claim Social Security is “the greatest anti-poverty program” and not be challenged for it, politicians won’t improve it.

Steven Stafford is a writer from Massachusetts. His work has also appeared in the Washington Examiner.

The typical U.S. household headed by a senior citizen has a net worth 47 times greater than one headed by someone younger than 35.

Another Way Social Security Taxes Are Skewed to Benefit the Wealthy:

Only Earned Income

The Social Security tax applies to earned income, such as your salary or wages. It does not apply to unearned income such as investment income or retirement plan distributions. For example, if you have $90,000 in wages, $10,000 in rental income and $5,000 in capital gains and dividends, you pay the Social Security tax on the $90,000 of earned income.

My Comment:  Rich pay no Social Security taxes on Rental Income or Capital Gains and Dividends-They get a FREE PASS!

Annual Limit

The Social Security tax applies to a maximum amount of earned income each year. As of 2012, the limit is set at $110,100. Each year, the limit adjusts to account for inflation. If you have more earned income than the annual limit, you don’t have to pay the Social Security tax on that portion of your income. For example, if in 2012 you have $150,100 in earned income, you have to pay the Social Security tax on the first $110,100.

The Social Security tax applies to earned income, such as your salary or wages. It does not apply to unearned income such as investment income or retirement plan distributions. For example, if you have $90,000 in wages, $10,000 in rental income and $5,000 in capital gains and dividends, you pay the Social Security tax on the $90,000 of earned income.

Annual Limit
The Social Security tax applies to a maximum amount of earned income each year. As of 2012, the limit is set at $110,100. Each year, the limit adjusts to account for inflation. If you have more earned income than the annual limit, you don’t have to pay the Social Security tax on that portion of your income. For example, if in 2012 you have $150,100 in earned income, you have to pay the Social Security tax on the first $110,100.

My Comment:  If you are a Wall Street Derivatives trader you earn millions or trillions and only pay social security taxes on the first $110,100 of earnings.  This really benefits the wealthy BIG TIME!  Guess who fund the political campaigns for our Congress Persons?  The Wealthy;  Especially the ZIONISTS!  There is plenty of money to fund Social Security-the wealthy need to be taxed on ALL of their earnings.  The poor pay a disproportionate share of their earnings to taxes.  Take a look at the charts below.

2012-09-11-Screenshot20120910at4.41.53PM.png2012-09-11-Screenshot20120910at4.44.29PM.png

How the Wealthy Are Killing America

Do the Rich Pay Their Fair Share of Taxes?

An investing client of mine asked me Sunday morning if I thought it was fair that 50% of Americans paid little to no federal income tax.

Of course, this is a loaded question. Others have pointed out that while some poorer Americans pay little to no federal income tax, they do pay 15.3% FICA taxes which covers their contributions to Social Security and Medicare, a highly regressive tax because only your first $106,000 of income is subject to the tax. In addition, local sales taxes are highly regressive because the poor and middle-class end up having to consume a much larger percentage of their income just to get by.

But the question got me thinking. What do the poor and middle class do with their money? Have they figured out some great way to avoid taxes? If they don’t have Swiss bank accounts or tax shelters in the Cayman Islands, how exactly are they avoiding paying federal income taxes? What I found out was terribly disturbing.

I decided to examine household incomes in America by quintile to see, if indeed, the rich were paying too much tax. Following is a breakdown by quintile of the average incomes for American households for the year 2010. I have also included the data for someone with a million dollar income just to see what he or she ends up paying in tax;

2012-09-11-Screenshot20120910at4.41.53PM.png
Source: Census Bureau – Table H-3

Rather than making a traditional calculation on what percent of their total incomes each quintile pays in federal taxes (including FICA taxes), I thought it would be interesting to ask what percent in taxes they each pay after paying for basic necessities like food and shelter. I tried to come up with an estimate of what amount of money one would have to pay each month just to barely get by, to barely keep his or her head above water. Here is my estimate. You can see it is a very low estimate of what it costs to live in the US as it doesn’t even include anything for medical expenses or health insurance or the required savings needed to send your kids to college or to retire on.

2012-09-11-Screenshot20120910at4.43.15PM.png

I know this is low and I challenge anyone who disagrees to try living on $2,000 a month for a while and to feed and clothe a family. But, let’s call it the bare necessities and see what it means for American families.

If you subtract this $2,000 a month or $24,000 per year from the various quintiles’ incomes, the following pre-tax disposable incomes result;

2012-09-11-Screenshot20120911at8.21.04AM.png

And here are the actual average taxes paid by quintile;

2012-09-11-Screenshot20120911at8.22.07AM.png
Source: Tax Policy Center

And so, here are the tax percentages that each quintile actually pays as a percent of their true disposable incomes assuming everyone needs at least $2,000 a month just to get by;

2012-09-11-Screenshot20120910at4.44.29PM.png

This certainly doesn’t look fair, much less progressive. A rate cannot even be calculated for the lowest quintile because they are $13,000 negative in the hole before even paying their taxes. Similarly, the second quintile owes more taxes each year than it has available after paying for basic necessities. The third quintile represents the median income earner in the United States and is paying approximately 50% more of their disposable income in taxes than our richest Americans.

This is clearly a terribly regressive system in which the least among us are asked to pay the most from our disposable incomes. When looked at from this perspective there is no question that the wealthy have to pay a greater share of the taxes if we have a chance in balancing the federal budget.

But these numbers are distressing even regardless of tax policy. They suggest that 40% of American families after tax don’t even have enough income to cover life’s bare necessities. Think of it. 40% of American families can’t save a dime for a child’s college education, can’t afford to save a dollar for their retirement and can’t afford to buy health insurance.

What have we done? We have opened trade with countries that pay their workers less than one dollar an hour and get away with it because the cost of living in those countries is so low. But our own workers cannot be forced to compete with such low wages as it costs much more to live here.

I have watched my native Kentucky lose its manufacturing plants overseas and have its union plants busted up solely by the threat to outsource jobs. Manufacturing wages in my parent’s home town in Kentucky have declined from $15 an hour plus benefits to $7-$8 an hour with no benefits. You cannot raise a family on seven dollars an hour even if both parents work.

We are killing this country. CEOs, entrepreneurs, bankers, lawyers, doctors and politicians at the top of the pyramid are all benefiting from the lower cost of labor for their employees and the lower cost of goods imported from low-wage countries. But our workers, our dear workers are getting crushed. This is not the America I grew up in. And this shall not stand.

John R. Talbott is a bestselling author and financial consultant to families whose books predicted the housing crash, the banking crisis and the global economic collapse. You can read more about his books, the accuracy of his predictions and his financial consulting activities at www.stopthelying.com

Source: Census Bureau – Table H-3

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