--Stated differently, does Obama consider Social Security to be a form of "forced retirement saving" or simply another form of progressive income redistribution with an intergenerational overlay?

--Additionally, the eight states with the highest concentration of affected taxpayers are generally considered "Democratic" (e.g., New York, New Jersey and Illinois). Did Obama consult with the senators and representatives of those disproportionately affected states — especially senior Democrats such as Chuck Schumer, Frank Lautenberg, Charlie Rangel, his Illinois colleague Dick Durbin (or, ahem, Hillary Clinton) — before announcing his plan?

Obama believes that the first place to look for ways to strengthen Social Security is the payroll tax system. Currently, the Social Security payroll tax applies to only the first [$102,000] a worker makes. Obama supports increasing the maximum amount of earnings covered by Social Security[.]

Currently, all wages below about $100,000 are subject to a 12.4% Social Security payroll tax. But all wages above that amount are not subject to the tax. Mr. Obama wants to eliminate the cap, but, in a concession to taxpayers, exempt wages between $100,000 and $200,000.

The top marginal federal tax rates would effectively increase to 50.3% from 37.9%, equivalent to repealing the Bush income tax cuts almost three times over.

"Once people are making over $200,000 to $250,000," Mr. Obama says, "they can afford to pay a little more in payroll tax."

Many high-earning individuals evade the Medicare payroll tax by setting up "S Corporations," paying themselves in untaxed dividends rather than taxable wages. John Edwards avoided $590,000 in Medicare taxes this way in the 1990s.

As President Bush and Congressional Democrats begin negotiations on a package of measures to stimulate the economy, the big fight will be over whether to put extra money in the hands of tens of millions of low-income families who paid little or no income tax last year.

Nearly 40 percent of Americans owed no federal income tax last year, though even low-income workers paid taxes for Social Security and Medicare. While Mr. Bush has refused to disclose specifics of his $145 billion plan, administration officials and Republican lawmakers favor a proposal that would offer rebates of up to $800 for individuals and $1,600 for families — but only if they paid that much in taxes last year.
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"You have to be a taxpayer in order to get a tax rebate," said Representative Paul D. Ryan, Republican of Wisconsin[.]

On the presidential campaign trail, Senator Hillary Rodham Clinton of New York and John Edwards, a former senator from North Carolina, attacked the Republican approach for excluding people who need help the most.

Senator Barack Obama of Illinois has already proposed a $90 billion program of rebates and supplemental Social Security payments that his aides said would reach 95 percent of workers.

1. The neither preposterous nor cruel premise that those who actually pay taxes should be the ones who actually get rebates.



2. Middle-class welfare during an election year.



3. Additional raiding of the (fraudulent) Social Security "trust fund."

Congress has passed and President Bush is sure to sign into law a bill that will spare some 23 million Americans from having to pay the alternative minimum tax next April.
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What they fail to say is that the bill doesn't include a way to make up for the lost revenue[.] To make up the shortfall, the government plans to borrow the money, which will have to be paid back later with interest, either by raising taxes or reducing government services.
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That's at best bait and switch, or at worst gross negligence.

Mr. Edwards said that a big-stick-carrying approach was the only way to effect change. Corporate resistance, he said, had ... resulted in a kind-to-the-rich tax policy[.]"

(Click to enlarge.)

He does not believe we need to reduce benefits, change the retirement age or increase the burden on average workers.

Edwards will fight to keep the promise of social security by ending the Social Security tax exemption for workers making more than $200,000 a year.

"That [Social Security] cap is now close to $98,000 (it's indexed), and the result is highly regressive."

Surely you know that Social Security as a program (and it is a program, not just a tax), is not regressive but in fact highly progressive.

A taxpayer who pays twice as much tax over her working career than another taxpayer receives far less than twice as much in benefits. That is unarguably the progressive redistribution of income.

And that's before the federal income taxation of Social Security benefits, which is itself radically progressive. So in fact Social Security is "double-progressive" (or "progressive-squared").

So I ask you -- why are you misrepresenting the issue?

But a determined defense by progressives in the media, on the blogs, and in Congress beat back one spurious argument after another, while the American people made it clear that they really want a program that guarantees a basic retirement income that doesn't depend on the Dow. And Social Security survived.

In another jab at his chief rival, Democratic presidential candidate Barack Obama says in an ad released Sunday that the country needs an honest dialogue about Social Security in order to fix the system.
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He accused Clinton, the Democratic front-runner, of dodging tough questions about whether the government should tax workers' earnings above the present cap of $97,500 to help pay for Social Security benefits.

Some other changes that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $102,000 from $97,500. Of the estimated 164 million workers who will pay Social Security taxes in 2008, nearly 12 million will pay higher taxes as a result of the increase in the taxable maximum.

The ad shows Obama speaking to a group of older people who quietly nod as he tells them that, with 78 million baby boomers projected to retire, Social Security will pay more money in benefits than it receives to fund the system.

Families could get 401(k) retirement accounts and up to $1,000 in annual matching funds from the government under a plan offered Tuesday by Democratic presidential candidate Hillary Rodham Clinton.

At a cost of $20 billion - $25 billion a year, the plan is Clinton's largest domestic proposal other than her plan for universal health insurance. The New York senator said it would be paid for by taxing estates worth more than $7 million per couple and would help narrow the gap between the rich and those who don't have enough savings for retirement.
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Clinton said she wants to create "American Retirement Accounts" in which each family could put up to $5,000 annually in a 401(k) plan. The federal government would provide a tax cut to match the first $1,000 for any household that brings in less than $60,000 a year and 50 percent of the first $1,000 for those that make $60,000-$100,000.

Clinton said the accounts should not be used to replace any part of Social Security and that she is committed to addressing the long-term challenges of that program. "We have to fight and finally bury the idea of privatizing Social Security," she said.

The top-earning 25 percent of taxpayers (AGI over $62,068) earned 67.5 percent of the nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86 percent). The top 1 percent of taxpayers (AGI over $364,657) earned approximately 21.2 percent of the nation's income (as defined by AGI), yet paid 39.4 percent of all federal income taxes. That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns.

From other IRS data, we can see that 90.6 million of the tax returns came from people who paid taxes into the Treasury. That leaves 42 million tax returns filed by people with positive AGI who used exemptions, deductions and tax credits to completely wipe out their federal income tax liability.

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"But I don't understand why somebody who makes $50 million a year pays Social Security tax on the first $97,000 and somebody -- and not on the rest..."

1. cut / curtail benefits


2. raise the retirement age


3. raise taxes

Hillary Rodham Clinton promised retirees that if elected president she will not cut Social Security benefits, raise the retirement age or privatize the taxpayer-funded system.

Clinton said instead she will protect the program through fiscal responsibility and criticized President Bush's leadership on the issue.

"This is the most successful domestic program in the history of the United States," Clinton said to applause from seniors gathered in Washington to push their policy agenda.

"We need to get back to the fiscal responsibility of the 1990's when we weren't raiding the social security trust fund"

A typical couple retiring in 2020, for instance, will have paid about $100,000 in lifetime Medicare taxes (much less if we don't credit them with interest on their past contributions). For that price, this couple is scheduled to receive about $500,000 in lifetime Medicare benefits over and above the premiums it additionally pays in retirement.

Politicians are doing absolutely nothing about it.

Still, consider the extreme case of George, who is in poor health throughout his life, works for a firm for 30 years, gets no survivor benefits, and dies at eligibility age. The firm would pay George zero pension benefits. Meanwhile, Paul, who is in very good health and can expect to live a long life, receives substantial pension benefits. The discrimination isn't just among individuals, like George and Paul, but also among groups. Blue-collar workers might do worse than white-collar workers and blacks worse than whites.

Social Security shows us that it is possible to deal with this type of discrimination through offsetting mechanisms. For instance, Social Security has a progressive benefit formula that provides higher benefits relative to past lifetime earnings (higher "replacement wages") to those with lower-than-average lifetime earnings. Because lower earnings are correlated with lower life expectancy, people from educational, racial, and other groups with lower life expectancy are more likely to get equal returns on their Social Security contributions or taxes.

By 2017, Social Security will pay out more in benefits than it collects in taxes, the trustees said in their annual report. The program's trust fund is projected to be exhausted by 2041, one year later than estimated last year.
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Over time, the programs are expected to consume a growing share of the federal budget. This year, about 7 percent of federal tax revenue goes toward paying Social Security and Medicare benefits. The figure is projected to climb to more than 10 percent by 2012, and 26 percent by 2020, said economist Thomas R. Saving, a trustee.

To keep the programs going, Congress and the president will have to increase taxes, reduce benefits or do both, the trustees said. "Without significant reform, these programs are not sustainable in the long run," Saving said.

Under a proposal presented last week to Democrats on the tax-writing Ways and Means Committee, families making less than $250,000 a year -- about 98 percent of taxpayers -- would be exempt from the tax. Those earning between $250,000 and about $500,000 would see lower AMT bills, according to Democratic sources who spoke on condition of anonymity because the plan is not final.

To make up the lost revenue, families earning more than $500,000 a year would take a much harder hit from the AMT, as well as other adjustments to the tax code, the sources said.

About two-thirds of taxpayers owed more payroll taxes (including the employer portion) than individual income taxes in 2006. Many households (including most retirees) do not have any wage income and thus pay no payroll tax. Among households with wage earners, 86 percent have higher payroll taxes than income taxes, including almost all of those with incomes less than $40,000 and 94 percent of those with incomes less than $100,000. If only the employee portion of payroll taxes is considered, 44 percent of taxpayers and 56 percent of wage earners pay more payroll tax than income tax, including nearly 80 percent of earners with incomes less than $50,000.

A progressive approach to Social Security is justified because federal taxes forgone from 401(k)s and IRAs exceed $50 billion per year -- which primarily benefit high and middle earners.

1. Raise federal taxes (e.g., eliminate the wage cap), the federal deficit (i.e., do nothing), or both.


2. Cut benefits, either actual (yeah, right) or projected (e.g., Pozen's progressive indexing).


3. Restrict eligibility (e.g., by raising the retirement age).

Under current rules, the Social Security program is posted on the government's books as a cash transaction. Taxes and interest income are on the revenue side of the ledger, and benefit payments are on the spending side.
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Promises of Social Security and Medicare benefits are seen by many as a binding contract. Taxpayers receive annual reports detailing their future benefit packages every year. Those who want the change argue that the promises should be put on the books right away.

"Accounting is about recording the economic substance of a transaction or in this case the economic substance of the promise between the government and the taxpayers," [Financial Accounting Standards Advisory Board] member Thomas Allen said.

Bush administration representatives on the board are adamantly opposed to the proposal and could kill it.

[A]bout 11 million people will pay more in Social Security taxes because the maximum annual earnings subject to the payroll tax will increase to $97,500 from $94,200[.]