Hillary Clinton

Is Hillary Clinton Still Against Lifting the Cap on Income Subject to Social Security Tax? (Hope So)

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HillaryClinton.com

Hillary Clinton is on her listening tour to figure out how to fill out her 2016 platform (as Reason's Scott Shackford noted, her campaign's issue page is not just spotty but missing altogether). Because lord knows that 30-plus years in the public eye and having the last couple of years off just couldn't have given her enough time to prepare anything other than a cameo in her own annoucement video.

One of the first things I'd like to hear about from Candidate Clinton is whether she still believes that lifting the cap on income subject to Social Security taxes is a bad idea—"a trillion-dollar tax hike" she called it back in 2007 while running for the Democratic nomination. Here she is talking to New Hampshire editorial boards back in November 2007. The comments about raising the income level subject to tax comes in around 3.30 minutes.

Currently only about $118,000 of income is subect to 12.4 percent in payroll taxes (split between employer and employee) to pay for Social Security, which is in even worse shape now than eight years ago. The major Social Security trust fund, which pays for retirement, will have run out of surplus funds built up over the past decades around 2034. By law, Social Security is only be allowed to pay out what it takes in via dedicated payroll taxes and the trustees of the program say that when the surplus vanishes, benefits will be cut by 25 percernt or more. (The surplus in the Social Security trust fund that pays for disability will be gone within a couple of years.)

Yet a number of high-profile Democrats, notably Sen. Elizabeth Warren of Massachusetts and former Maryland Gov. Martin O'Malley, are rallying around the idea of expanding Social Security benefits. It turns out that even lifting the cap on income levels won't save the program fiscally. As the centrist think tank Third Way noted in 2013:

In 2030, a typical couple reaching the eligibility age of 65 will have paid $180,000 in lifetime Medicare taxes but will get back $664,000 in benefits. Given that this disparity will be completely unaffordable, Sen. Warren and her acolytes are irresponsibly pushing off budget decisions that will guarantee huge benefit cuts and further tax hikes for Gen Xers and Millennials in a few decades.

In a way, you have to hand it to economic populists. When faced with a program that has gotten more and more insolvent and unsustainable, they're willing to double down and essentially just say fuck it, let's party til we're dead (most economic populists talking up expanding Social Security are closer to the grave then the crib). Recall that these folks—along with a ton of Republicans whose fiscal looseness is stamped on every F-35 and Medicare expansion they've voted for—cried bloody murder when Barack Obama proposed tying increases in benefits to the cost of things rather than wage inflation.

So, does Hillary Clinton still think a "trillion-dollar tax hike" is a bad idea? Certainly, adding a 12.4 percent tax on every dollar of earned income over $118,000 will have a dampening effect on all sorts of things, if only because it gets sucked out of people's hands and into the government bureaucracy.

My dream candidate would openly push for an end to entitlements based on age, a category that no longer predicts anything about finances other than a positive situation. If we want to provide a social safety net, let's have that debate and focus on the truly needy among us, not retirees who are living longer and richer on average than ever before. I realize that's probably a bridge too far for any major-party candidate to blow up, but we'll get there sooner or later whether we want to or not. There's simply no way to sustain old-age benefits the way we have since 1935.

Social Security was passed in the thick of the Great Depression and we live in a very different world, one in which relatively young and relatively poor people are paying for benefits that go to relatively old and relatively wealthy people (recall too that Obamacare is predicated upon forcing young healthy people to subsidize the insurance premiums of older sicker people).

That's not just fiscally dumb, it's generational warfare in which the baby boomers, who once so famously rebeled against their parents, are now sticking it to their own kids and grandkids.

One of Hillary Clinton's talking points these days is that becoming a grandmother has given her a whole new perspective on the world. Her granddaughter will do just fine, I'm sure, given the immense wealth that Bill and Hillary have amassed over the past decade-plus. But I'd sure like to know what she thinks about the grandkids of the rest of us.

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60 responses to “Is Hillary Clinton Still Against Lifting the Cap on Income Subject to Social Security Tax? (Hope So)

  1. Is Rand Paul running for President? I have seen nothing on this topic at Reason lately.

    Also, fried chicken

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  2. So who’s going to come in here and try to make the claim that “It’s only a 6.2% tax and not a 12.4% tax, you lying libertarians!” Tony, Bo or Shriek?

    (because every time I see medicare taxes talked about, I see that idiotic argument)

    1. The employer’s half is evil profits, duh.
      The full number is even more obvious to me as a partial owner of a small business.

    2. I pay the self-employment tax (i.e. payroll taxes for those of us who are not W2 employees), which is 12.4% and amounted to about $20,000 of taxes paid directly from me to the Federal government last year. I would love to nutpunch (or cooch kick) any asshole who as the audacity to stroll by and say something like that.

      1. Ditto. Small businesses/self-employed and others who pay “both sides” of the equations are already screwed by the current SS/Medicare payroll taxes, but hey, “rich” should be pay taxes on ALL their income – just like everyone else…

        1. If you are self employed and paying $20K in taxes you should really look into filing an S-Corp. Pay yourself a minimal salary and call the rest of your income “dividends”.

          1. Generally speaking, you are not allowed to do that. The company I work for is a medium sized employee owned S-Corp. And all “dividends” are considered bonuses and subject to the normal employment tax rate.

    3. You can’t read for shit.

      I have consistently argued for SS/Medicare benefit reduction (like in the Simpson-Bowles plan Congress shat on).

      Of course all you Peanuts have a reading comprehension problem. We knew that.

  3. I’m not sure this is a problem that can be solved as long as those receiving the benefit are still allowed to vote. SS should have been means-tested from the beginning, and not been allowed to be pushed as a public pension or national retirement plan.

    1. SS should have been means-tested from the beginning aborted in the womb, metaphorically speaking,

      fixed

      1. Well, yeah… I’m really in “I know we’re going to get fucked, but could it at least be with the strap-on not covered in fish-hooks?” mode.

      2. By the way the only reason Social Security ever got enacted was the fact that FDR bribed the North Carolina congressman who was the chairman of the House Ways and Means committed to change his position on the legislation by changing the route of the Blue Ridge Parkway to go through North Carolina instead of Tennessee.

    2. Except then they never would’ve generated all that money that they used for deficit financing over the first 70 years of the program.

    3. I’ll fucking opt out right now, provided that I can stop paying into the scam, too. I could get a better return investing in stocks shrike recommends.

      1. +1 short gold

      2. I try not to think about how much money I’ve lost with FICA being taken from me every paycheck, which could have otherwise been invested and maybe inherited by my kids.

        1. I’m 61, I used to think this way, until 2008. It nice to have an inflation-protected, annuitized stream of income to count on in addition to my private stock-based investments, which have nothing to prevent them from going over the cliff at an inopportune time.

      3. That is the sad irony of the entire system. It really is lose-lose. Not only do you pull more money out than you ever put in, you get a lot less than you would with a private policy.

    4. “SS should have been means-tested from the beginning, and not been allowed to be pushed as a public pension or national retirement plan.”

      If people didn’t think it was a public pension or national retirement plan, there might not have been enough support to get it passed in the first place.

      We’re not the kind of people who need to see legislation in action before we understand whether we like it, but a critical mass are exactly those kind of people.

      A lot of people really do have to pass it before they know what’s in it.

      That might be the secret to getting rid of the program. If more people understood that we’re getting negative returns on Social Security, they might back passing a real “national” retirement plan–where everyone is required to make a donation to their own private retirement plan equivalent to what they now pay in Social Security contributions.

      Is it perfectly libertarian?

      No.

      But it’s a hell of a lot more libertarian than what we have now.

      At least we get to keep our own damn money and we don’t get negative returns and make the nation’s elderly and needy depend on the proceeds of a ponzi scam for their retirement.

      1. Unfortunately, according to SSA data, “most” people end-up with a great return on Social Security, since they paid little in the first place. Medicare is a disgrace – net negative of over $300K per person (average) in lifetime benefits.

        1. For the average person who retires now, social security provided a negative return.

          http://www.investmentnews.com/…..ve-returns

          They can play with the wording to show that the average person ON social security got a positive return–but that includes people who retired 20 years ago.

          That trend is getting worse all the time.

          If we can wake Gen Y up to that fact, they may get on board with allowing people to opt out and save their own money + means testing people coming onto the program.

    5. SS already is somewhat means-tested. Sure, affluent geezers get a bit of positive cash flow, but less affluent geezers make out much better for two reasons.

      1. The SS benefit formula is not a strict actuarial formula: the benefit rate is decreases substantially with the income upon which SS taxes have been paid. A person’s earnings history over the years is first indexed for inflation to the present. His SS benefit is determined to replace 90% of his first $826/month of indexed income. For the next $4154/month of income, he receives just 32%, and for the next $4770/month of indexed income, he receives just 15% of indexed income as benefit.

      2. Income taxes on social security benefits are extremely progressive. A less affluent geezer pays no tax on his benefits. More affluent geezers pay marginal income tax rates up to 34% on their entire SS benefit.

      You can argue that mean-testing on SS should be more stringent, but its benefits already are means-tested.

  4. I can’t believe you guys are talking about Hillary on the issues.

    That is soooooooooo sexist.

    Hillary is against hate. The Republicans are all about hate.

    Hate of homosexuals. Hate of black children being gunned down by the police in our streets. Hate of Latinos.

    And you guys want to talk about Hillary on the issues?!

    Up against the wall!

  5. One of the guests on Red Eye called her “America’s Ex-wife“. I’ll be using that for quite a while. Resonates wit me for some reason (drink?).

    1. That is actually one of the more effective negative characterizations of her.

  6. The major Social Security trust fund, which pays for retirement, will have run out of surplus funds built up over the past decades around 2034.

    Nick, it’s disingenuous to say that the SS trust fund actually has any “surplus funds.” The trust fund has IOUs in the form of treasuries. Those aren’t funds because when they mature, they are paid by existing inflows of taxes. We are governed by Lloyd Christmas.

    1. The amount in the fake trust fund matters a lot though because the SS law is tied to it. Once the fake fund runs out, benefits get cut. And as that date approaches, its going to force the political system to do something. Although that something may be to just deem the trust fund full or something.

  7. Megan McArdle had a good series of SS blog articles last week. You should have seen how the Ds attacked her in the comments–they are so appalled at anybody suggesting changes to the jewel in their party’s social welfare crown.

    1. One of the reasons “true progressives” turned on Obama was his willingness to “cut” SS via chained- CPI.

      1. Ergo, “true progressives” are economically incompetent.

        1. You say that as if it wasn’t already a known fact.

  8. “My dream candidate would openly push for an end to entitlements based on age, a category that no longer predicts anything about finances other than a positive situation. If we want to provide a social safety net, let’s have that debate and focus on the truly needy among us, not retirees who are living longer and richer on average than ever before”

    And what would this “dream candidate” tell the specific group of people who would be royally screwed by that in that they have paid large amounts in FICA taxes their whole life and would get nothing back in exchange for it?

    There is no way to change the system without singling out some people to get left holding the bag.

    1. My thoughts on this are:

      -If you’re currently drawing SS you get to keep SS as it is today until you’re dead.

      -If you’ve never tapped SS you get the contribution you’ve made back + ~4% interest and you never draw a dime from SS. You’re on your own from this point forward. Use your check wisely.

      1. “-If you’ve never tapped SS you get the contribution you’ve made back + ~4% interest and you never draw a dime from SS. You’re on your own from this point forward. Use your check wisely.”

        That would actually be a better deal than exists to today for a certain group of people who are already guaranteed to lose money on what they paid into the system.

        I would take that deal but the probabilty of that ever being enacted is zero.

        1. Such losers already include dual median income couples since about 2010. And it’s only going to get worse. Here’s a thought, how ’bout we stop psying spouses the 50% bonus for staying at home? Fine, you can have survivor benefits, but if you didn’t psy in, then why the hell do you get anything out? I know, I know, fighter jetz.

      2. This geezer would take that deal in a heartbeat. I’d be happy to exchange my dubious right to a SS benefit for $500,000, which is about what I’d get under your proposal.

        Unfortunately, SS doesn’t have the cash to make such distributions.

        1. You’re absolutely right that SS doesn’t have the cash to make the payout. They’d have to borrow the money to do it (or print it). In the short-term it would be painful but I don’t think we can keep kicking the SS ponzi can down the road for another 50 years. If they did this today there would be no one left on SS in 50 years. I think there’s a good chance it would boost GDP enough to make it a wash in 20 years. Plus you get rid of the vote pandering for SS.

    2. Or leave nearly everyone still alive holding the bag by limiting benefit growth and phasing it out over a generation. Buttplugs Blue heroes really must be burning for this.

    3. The dream candidate is a dream for a reason. The idea that some candidate is actually going to tell the truth – “You fucked up, you trusted us” – and get people to realize the whole thing’s a giant Ponzi scheme, that we’re all getting screwed and that your getting screwed is not a justification to continue screwing somebody else is a fantasy. At least not until well after the gov has repeatedly imposed a “one-time emergency fee” on all that free money just sitting around in all those IRAs and 401-Ks. (You know that’s coming, right? If you’ve demonstrated your extreme individualism by trying to take care of yourself and your family – but only yourself and your family – by stashing away your retirement funds, well, you didn’t build that, you greedy evil bastard. Now cough up your fair share.)

  9. “In 2030, a typical couple reaching the eligibility age of 65 will have paid $180,000 in lifetime Medicare taxes but will get back $664,000 in benefits.”

    What does the amount paid in Medicare taxes have to do with this?

    1. It shows what a great deal Medicare is for the people receiving it as opposed to the people paying for that $464,000 shortfall right now.

      1. The whole post is about Social Security benefits and the Social Security taxes, not Medicare.

        The lead-up to this quote is: “It turns out that even lifting the cap on income levels won’t save the program fiscally. As the centrist think tank Third Way noted in 2013:” Since there is no cap on Medicare taxes, this makes no sense.

        1. Yes, I agree, Nick is conflating the two programs in a way that makes the topic more confusing.

    2. Well, lets use 2nd grade math to solve this, shall we?

      The average couple will have paid $180,000 in taxes.
      The average couple will have received $664,000 in benefits.

      $664,000 is greater than $180,000.

      There are many “average couples”.

      This is not sustainable.

      1. Let’s use second grade reading first. The post is about Social Security, not Medicare. They are different programs. So the quote that Nick uses has no application to the topic he is writing about.

        1. Nick was clumsily using that to show that lifting income caps does nothing to alleviate social program shortfalls.

          He should have worded it better than he did.

        2. FTA:

          Social Security is exhibit A of this populist political and economic fantasy. A growing cascade of baby boomers will be retiring in the coming years, and the Social Security formula increases their initial benefits faster than inflation. The problem is that since 2010 Social Security payouts to seniors have exceeded payroll taxes collected from workers. This imbalance widens inexorably until it devours the entire Social Security Trust Fund in 2031, according to the Congressional Budget Office. At that point, benefits would have to be slashed by about 23%.

          Undeterred by this undebatable solvency crisis, Sen. Warren wants to increase benefits to all seniors, including billionaires, and to pay for them by increasing taxes on working people and their employers. Her approach requires a $750 billion tax hike over the next 10 years that hits mostly Millennials and Gen Xers, plus another $750 billion tax on the businesses that employ them.

          Even more reckless is the populists’ staunch refusal to address the coming Medicare crisis. In 2030, a typical couple reaching the eligibility age of 65 will have paid $180,000 in lifetime Medicare taxes but will get back $664,000 in benefits. Given that this disparity will be completely unaffordable, Sen. Warren and her acolytes are irresponsibly pushing off budget decisions that will guarantee huge benefit cuts and further tax hikes for Gen Xers and Millennials in a few decades.

    3. It doesn’t aside from the fact that it’s another out of control welfare program which has already had its cap removed(and then some). But Nick is much more comfortable talking about F-35 fighter jetz than entitlements.

      1. Which is conflating two different topics and waters down his argument. If you can’t make a cogent argument without bringing in extraneous topics then maybe writing is the wrong career choice for you.

        Oh, who am I kidding, it seems like the world is full of “journalists” whose stock in trade is throwing red meat to their readers. And that’s exactly what Nick is doing here. But on a site called Reason, he should be called out for it.

  10. What is the purpose of the cap as it is? A fig leaf of justification that SS taxes are “your” payments into a government-managed retirement system that anybody making over a certain (high) amount isn’t going to be dependent upon and therefore doesn’t need to entirely pay into. Abandoning the cap is a tacit admission that SS taxes are just like any other tax totally divorced from retirement needs, there is no trust fund and no lock-box and none of the money is “yours”. (Which of course SCOTUS has already ruled is the case and anybody with a lick of sense knows to be the case.) Admiitting the obvious – we’re going to tax the shit out of rich people because they’re the ones with money, duh, – is admitting that free shit ain’t actually free. You’re not gonna get elected telling people Santa Claus is Other People paying for your free shit.
    .
    The idea that the gov will “have” to cut benefits is equally silly, of course – they’ve got a printing press, don’t they? Just because you or I can’t expect to get away with writing checks on an empty bank account doesn’t mean the government can’t. They just write themselves a big fat check and deposit it in the empty bank account and – voila! – the account is filled again. See how believing in Santa Claus works?

    1. Of course Obamacare works on this same principle – we as a nation cannot afford adequate healthcare so the government will have to pay for it – and anybody that claims this is logically absurd is probably the sort of moron who doesn’t understand that you can get free electricity by plugging the male end of an extension cord into the female end.

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  12. Anybody who talks about the total amount of taxes paid in by a person v. the amount paid out to that person is just buying into and perpetuating the foundational lie of these programs: that they are a form of pension (SocSec) or health insurance (Medicare).

    They aren’t. Every dollar collected for either program is spent that year. There is no pool of assets created to fund future liabilities or anything like that.

    Its an income tax, plus a welfare program. That’s all it is, all it ever was, all it ever will be.

    So, you’ve been taxed a half a million for these programs? That money’s gone, spent, not coming back. And it no more creates a legal or moral claim on benefits going forward than me donating money to a charity throughout my life, and then demanding that they pay my bills after I retire.

    1. “So, you’ve been taxed a half a million for these programs? That money’s gone, spent, not coming back. And it no more creates a legal or moral claim on benefits going forward than me donating money to a charity throughout my life, and then demanding that they pay my bills after I retire”

      So then eliminate the entire thing immediately for everyone. There is no MORE “moral claim” to continue paying benefits to anyone else than there is to continue doing so for the guy who was taxed half a million for the program.

      As you said, the program was sold on a foundational lie. It would never have been enacted on the basis that it was merely a tax to provide welfare for a select group of people.

  13. The “Third Way”, a centrist think tank???? LMAO, please read http://www.thirdway.org/case-s…..nt-reform. While I don’t necessarily think that they are automatically wrong on things, they certainly (by their own admission), are not centrist! Read the above, they openly use the first person when talking about the Democrat party and openly say that they are “center left”.

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  16. Given money is fungible, and the government treats the payroll tax, income tax, and all other forms of taxation as fungible, if we could combine the payroll tax and the income tax into a single income tax, it would go a long way towards tax simplification.

    The problem has been tax deductions and exemptions, and the fact due to the various deductions, the first dollar of income earned is not taxed.

    If we could eliminate ALL deductions and exemptions, and replace them with a single individual tax credit and a per-child tax credit, then every dollar earned would be taxable. We then could combine the payroll tax and the income tax into a single income tax, reduce the number of brackets, and reduce the rate.

    I would also treat capital gains and dividends as ordinary income, and manage them by using a single tax rate. We have a very high top marginal tax rate, and the AMT, in part due to high earner compensation which is based on dividends (S-Corps) and capital gains (equity leveraged executive pay plans).

    We could radically simplify the tax system if we wanted to.

    1. Another thing. Why not eliminate all welfare transfer payment programs: SNAP, TANF, WIC, SSI, etc., and replace it with a single, refundable tax credit that goes to everyone? For those of means, use the tax system to get the money back. This would be similar to Milton Friedman’s reverse income tax. If it is done correctly, we could dump UE Insurance and other temporary programs as well.

      Tax and welfare simplification would allow us to radically reduce the size of the government.

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