Tag: 118th Congress

Privatizing Social Security, redux, redux

I saw Paul Ryan on CNN gleefully floating privitizing social security — and, just like when the idea was proposed five years ago and fifteen years ago, the rational is that the stock market in some random time delta has greatly outperformed the investments social security makes.

I remember attending a protest when the second President Bush proposed this at the onset of his first term. One of the local news stations had a reporter milling around the protest looking for individuals to interview for the evening news. She asked me leading questions — are you worried about your parent’s retirement if people start investing their social security money in the stock market — and she was surprised that my objection wasn’t anything so specific. The senseless thing about investing social security funds in stocks (or, more likely, in stock funds that also direct a decent chunk of money toward fund managers and investment firms that create those funds) — the whole social security system came into place because people dropped their savings into the stock market, it crashed, and they were broke. It is historically ignorant to avoid mentioning this fact. Social security forces people to make *some* safe investment choices. Yes, those have lower yields … but they also don’t LOSE money. If you earn enough money to have extra and want to invest it in DWAC or bitcoin or stuff it under your mattress … rock on! But don’t pretend that we’re not getting any benefit of the lower yield investments made with the social security trust money. Also, how in the world is our government funded after all this social security money starts flooding the stock market … the social security trust money is going into special Treasury bonds. Even if 20% of those funds got redirected into investment funds (and that’s a HUGE boon to fund managers, just like 401k’s were a huge boon to fund managers), that’s a lot of money *not* going into US Treasuries anymore.

I will note, too — directing a large pool of money into the stock market would, in the short term, re-inflate stock prices and allow current investors to make a lot of money.

Replacing the IRS

The “fair tax plan would replace federal income tax with a national sales tax. I can see the appeal if you don’t spend any time doing math. I mean, who *likes* filling out their taxes each year? A simple way that eliminates all of the IRS overhead sounds awesome. Make sure actual numbers get as much air time as the nice sounding “you wouldn’t have to fill out the tax form” and “no more wasting money on agents [to collect money people cheat the government out of]”. How much would you have to spend in a year to match your current tax load? Simple — take the amount of federal income taxes you paid and divide it by 0.3 (because the proposed rate I’ve seen is 30%). Do you spend more than that a year on taxable stuff? If so, you are seeing a tax increase!

Someone making minimum wage makes ~about~ $30,000 a year. And, with absolutely no deductions of any sort and as a single filer, they pay $3,394.50 in federal income taxes (they don’t; no one I’ve encountered who makes minimum wage actually pays the full “rack rate” for income tax because they qualify for some deductions). That would mean $11,315 a year in taxable purchases to reach their *WORST CASE* federal tax bill. Fifty bucks a week for groceries is $2,600 right there. Need to buy clothing/shoes? That’s taxed. Need to buy furniture? More taxes.

On the other hand, I pay about $15,000 in federal income tax. At 30%, that would require 50,000$ of taxable purchases *each year*. Maybe if there were some “get out of sales tax free” card that they handed out to anyone making under 40k a year, this would be an interesting way to discourage wasteful consumerism. But (1) that’s hardly the plan and (2) there’s a huge difference between taxing a new Birken bag and taxing *dinner*. The one good point I could see (well, other than there being absolutely no way any of this nonsense goes anywhere in the Senate nonetheless gets a presidential signature) is that, if the sales tax is only on new purchases, it would be a huge boon to resale and repair businesses.

Worse still, the more you make? The easier it is to reduce your overall tax burden. With land and solar, I could go this year without spending money on anything other than homeowners insurance, car insurance, property taxes, and probably new tires for the car. Even if all of these are subject to federal sales tax, that’s maybe $3,000 in tax for the year. More likely, though, only the tires are taxed.