Friday, December 27, 2013

Banker/Wall Street Year-End Bonuses & The BEST Social Security Modernization Plan

Banker/Wall Street Year-End Bonuses & The BEST Social Security Modernization Plan

Some writers and groups have been speculating on what Bank & Wall Street Executives could or should do with their extravagant year-end bonuses. www.other98.com/end-the-banker-bonuses-this-holiday-season .

As part of its December 27, 2013 show, Democracy Now has a thoughtful discussion on this topic. One aspect of the DN discussion talked about the importance of closing “loopholes.” I agree. http://www.democracynow.org/2013/12/27/occupy_offshoot_urges_wall_street_to


Supporters of The BEST Social Security Modernization Plan view this a little differently. Once it is adopted, and short-term capital gains and rents are subject to paying the Social Security payroll tax and, accordingly, these earning are taxed by IRS rules as wage or ordinary income subject to those higher income tax rates, Wall Street year-end bonuses might become a little smaller and more frugally constructed. There might be even less dancing on the Wall Street executive boardroom tables!

The added revenues from the enactment into law of The BEST Social Security Modernization Plan will significantly contribute to a stronger, more solvent Social Security program and might even act to lower the nation’s debt and could even enable the availability of funds to repair the nation’s infrastructure which could even lower the currently unacceptable unemployment rate.  Dominoes - anyone?












Sunday, December 22, 2013

Today's Reading Assignment - Making The Case For The "BEST Mod Plan"

Today’s Reading Assignment - Making The Case For “The BEST Mod Plan”

Here are a couple of articles which I am assigning today as recommend reading which serve to support the underlying tenets of the BEST Social Security Modernization Plan.

The first one makes the case that the safety net is best strengthened by supporting full employment and programs that support visionary activity. The BEST Mod Plan does not support means testing of the Social Security program. Social Security is an earned right social insurance program and should never be lumped together with other important programs like food stamps and Medicaid which are part of our nation’s safety net. http://www.nytimes.com/2013/12/18/opinion/edsall-is-the-safety-net-just-masking-tape.html?pagewanted=all&_r=1&  .

The second article discusses the divergence between income from work and income earned from wealth. The BEST Mod Plan is designed to treat these two forms of work more equally. http://digbysblog.blogspot.com/2013/12/assets-versus-workers-again-wealth.html

Feel free to discuss these articles in the context of the BEST Social Security Modernization Plan in the comments below.




Friday, December 20, 2013

A Brief Abstract - The BEST Social Security Modernization Plan

A Brief Abstract - The BEST Social Security Modernization Plan

The BEST Social Security Mod Plan is the BEST Social Security solvency plan because unlike other Social Security plans it doesn’t focus on the same ideas that have been unsuccessfully rehashed over the last several decades. Instead, it uses bold, creative, progressive ideation.

It takes a new look at the way Americans work and earn money, and concludes that all modes of work: physical labor, mental labor and financial investment labor should be treated equally. Using principles of logic, it concludes that there is no basis for treating income earned by physical labor and that by financial investment and speculation differently or that wealth should be entitled to any differential treatment by the Social Security or the federal income taxation program.

As a result, the BEST Plan finds new sources of revenues for the Social Security trust fund by adding the definition of earned income for purposes of Social Security taxation monies earned from short term capital gains, all forms of rental income, and requiring newly hired State and local employees to pay Social Security taxes for a five year period after being hired.

It also creates a progressive three-tier system of taxation for contributing to the trust funds without removing the payroll tax cap on earnings.

In addition the BEST Plan is adamantly opposed to any attempts to make the Social Security program means-tested.

Details on the above can be found by reading my earlier posts on this blog and by posting your comments or questions in the comments sections.




Tuesday, December 17, 2013

Where's The New Social Security Commissioner? - Political Irony?

Where’s The New Social Security Commissioner? – Political Irony?

Social Security has an Acting Commissioner, Carolyn W. Colvin, who previously was the Deputy Commissioner. Ms. Colvin also has prior experience working for the Social Security Administration, and appears to be a competent administrator.

At a time where Social Security needs a charismatic, dynamic, and creative leader and administrator, President Obama has not yet nominated his candidate for the next six year term for the Commissioner of the Social Security Administration. Here is an interesting take on why he has not yet come forward: http://judgelondonsteverson.me/2013/01/14/who-will-president-obama-select-to-be-the-new-commissioner-of-the-social-security-administration .

Social Security has three huge tasks facing it: Restoring program confidence and solvency, reassessing its service delivery approach and its effectiveness, and updating its programmatic issues, particularly the disability insurance program.

There has been much written about what may be former President George W. Bush’s most significant and longest lasting legacy. There certainly are many to choose from, but given Mr. Bush’s desire to privatize Social Security, the fact that he appointed two Social Security Commissioners, who filled the Commissioner’s slot for nearly twelve years, ranks right up there. Mr. Bush appointed Jo Anne Barnhart who filled the position from November 2, 2001 through January 20, 2007, and then Michael J. Astrue who filled the slot from February 12, 2007 through January 19, 2013. Twelve years! That’s a long time to have people running a program that they may not have even unequivocally supported.

Current law calls for a six year term for the Commissioner of Social Security. Theoretically, the purpose of the six year term was to remove politics from the position. However a case can be made that having a six year term makes it even more political. President Bush managed to control who sat in the Commish’s seat for twelve years! Even W, himself, only controlled or occupied the oval office for eight years!

So where is the nomination for the new Social Security Commissioner? Is President Obama waiting until the second half of his term to name a new commissioner? Is the idea to appoint someone whose term will not expire until after the 2020 presidential election in the event of an opposition party victory in 2016?

This is a poor strategy, if that is what is happening. Social Security needs to be the BEST that it can be NOW! That is a better strategy. The Clinton administration lasted eight years. It had a chance to do a few things to shore up Social Security solvency and bolster program confidence. It did nothing. Is President Obama planning on the same strategy?



Monday, December 16, 2013

Which Type Of C.O.L.A.* Is B.E.S.T.**?

Which Type Of C.O.L.A.*  Is B.E.S.T.**?

Beginning with June 1975, Social Security benefits increased automatically with increases in the cost of living. In 1983, the Social Security benefit cost-of-living-increase became effective in December (payable in January of the next year) rather than June. Here is a history of the dates and amounts of increases over the years:  http://policy.ssa.gov/poms.nsf/lnx/0300601120. The December 2013 COLA amount is 1.5%.

The COLA is an across the board percentage increase for all Social Security beneficiaries. (It is a little more complicated than this due to rounding and other deductions, but, in general, that is how it works.)

Thus, for someone who gets a $2,000 a month Social Security check that person will receive a $30 or 1.5% increase. While the December 2013 COLA is relatively small, a person who is currently getting a $2000 check might be able to buy a small bag of groceries with their COLA increase.

However, for someone who receives a smaller Social Security check, for example, of $450 per month, the 1.5% COLA that they will receive will be only $6 or $7. If the Medicare premium being deducted from their Social Security goes up significantly, they may see even less of an increase or perhaps nothing at all.

Senator Elizabeth Warren of Massachusetts is proposing improving Social Security by providing larger COLAs based on a more realistic formula of using increases in the cost of living relevant for retirees. This is a good idea which should be pursued.

In the meantime, is their a better way to pay out that 1.5% increase in Social Security payouts for December starting in January 2014? Why not pay out a flat or “de-fizzed” COLA to all recipients?

Here is a chart that as of November 2013 the total number of Social Security beneficiaries and the total amount of benefits they are being paid each month: www.ssa.gov/policy/docs/quickfacts/stat_snapshot . Roughly, in 2013, Social Security pays out $67.4 billion each month to 57.9 million beneficiaries.

A 1.5% COLA paid out on this amount, then, would amount to $1 billion. If each beneficiary were to receive the same amount of a COLA or a flat COLA, each beneficiary would receive $17 more each month. That’s not much, but it is much better than $6. (This issue is a little more complex than this, as some beneficiaries receive benefits as part of a family and it does make sense to limit the flat increases to family members to 50% of the wage earner’s increase – a relatively simple algebra problem.)

It is likely that legislation would be required for Social Security to be able to pay out the “de-fizzed” flat COLA. That’s why I would like a seat at the table when Social Security reform is legislated. However, keep in mind that not all changes to Social Security procedures require a change in the law.

Let’s pay Social Security COLAs in a more equitable, progressive fashion!



* Cost-Of-Living-Adjustment      **Balanced-Equitable-Solvent-Tested

Saturday, December 14, 2013

Take Note - Social Security Is NOT an "Entitlement" Program!

Take Note - Social Security Is NOT An “Entitlement” Program!

The individuals, groups, media outlets, and members of congress who refer to Social Security as an “entitlement” program do so as part of an effort to demean or slur the Social Security program, and it should have no place in the American vocabulary.

Keep in mind that since the beginning of Social Security in 1935, there have been and continue to be dark forces that have tried to do away with the Social Security program as we know it. For those who truly support the Social Security program, but who acquiesce to the use of the term, “entitlement,” in connection with Social Security and thus play into the hands of Social Security’s opponents: Shame on you!

Those who receive Social Security benefits do so as part of an “earned right” which is accrued as a result of contributions to the Social Security trust fund. Social Security is a social insurance program in which participants assume shared risks for the common good of providing retirement insurance, disability insurance and survivors insurance to all who qualify.

One of America’s biggest private industries is the insurance industry. Many of us pay hefty annual car insurance premiums and homeowners insurance premiums and never ever collect a penny in return. When a car is totaled or house decimated and the policy holder collects, do we picket the policy holder with signs protesting their “entitlement?”
No, we do not.

Unless fraud is involved, those who receive Social Security deserve to be able to live and be treated with dignity and respect which is a big reason why the Social Security program currently exists.

Social Security has never contributed even a penny to the federal deficit. On the other hand corporate subsidies, weapons development, wars, and Congressional actions, salaries, and perks certainly have played a role in the nation’s so-called budgetary woes.

Senator Elizabeth Warren recently addressed this issue and it is worthwhile reading what she had to say: www.rawstory.com/rs/2013/12/12/elizabeth-warren-destroys-bloomberg-hosts-on-social-security-entitlements-crisis.

In summary, Social Security is an “earned right” which is part of a very successful social insurance program and is NOT an “entitlement” program.



Friday, December 13, 2013

From The Archives 4 - Social Security Turns 75 On August 14, 2010

From The Archives 4 – Social Security Turns 75 On August 14, 2010

Today, I am reprinting another article from the BEST Social Security Modernization Plan archives. This article was printed in the Berkshire Eagle on Friday, August 13, 2010. Keep in mind that at the time the BEST Mod Plan was known as The 2009 Progressive Social Security Modernization Plan.


Social Security Turns 75

On Saturday, August 14, Social Security turns Seventy Five. It has been a fantastically successful program serving all American citizens.

Recently there has been a growing debate about what should be done to “Save” Social Security. Some want to increase the retirement age while others want to cut benefits. Defenders of the program say small changes can make the program solvent and continue to be self funded as always for the next 75 years.

Social Security has always evolved with the times. However, in recent years the Social Security definition of WORK has fallen behind the times.

The federal government has always taxed “work” as a higher, more aggressive rate, than wealth. The well-to-do or rich may or may not pay taxes on their wealth while workers/employees pay BOTH income taxes and the Social Security payroll tax (which includes the Medicare tax) of 7.65% or 15.3% for the self employed.

Work is work, and wealth is wealth. Right? Maybe! When someone uses their wealth and actively works to aggressively increase it, it is no longer merely wealth; it IS Work.

The 2009 Progressive Social Security Modernization Plan proposes updating the legal definition of work to include those who make short term investments and increase their wealth. Thus, these individuals would be subject to paying the 7.65%/15.3% Social Security payroll tax in addition to any additional income taxes which might be owed on these wealth or earnings. Under the proposal, all rentals from real estate would also be subject to paying Social Security taxes.

These added tax revenues will serve to bolster Social Security’s solvency and obviate the need to raise the retirement age or lower benefits.

Properly and fairly taxing these two forms of earnings would also serve to stabilize the stock market and real estate prices by slowing wild speculation.

Since the Social Security payroll tax tends to be a regressive tax for low wage workers, the proposal also reduces the payroll tax for all those whose annual earnings are below the minimum wage level, refundable via income tax return. This would help young workers, students, fledgling businesses, and older retired workers.


Thursday, December 12, 2013

Table Of Contents - November 25, 2013 - December 11, 2013

Table Of Contents – November 25, 2013 – December 11, 2013

Since I began the BEST Social Security Modernization Plan blog on November 25th, I have covered a lot of complex information. I thought that providing an easily accessible Table of Contents and providing a brief summary of the Mod Plan’s goals might be helpful to readers. Please, ask any questions you have about the plan via the “comments” sections.

The Summary: The Balanced, Equitable, Solvent, Tested (B.E.S.T.) Social Security Mod (Modernization) Plan is opposed to any reductions in Social Security benefits. It is also opposed to any increases in the Social Security retirement age. Its goals are to improve the solvency of the Social Security trust fund by infusing new sources of revenue, to make the Social Security payroll tax more progressive, and to recommend other improvements, expansions, and innovations to the Social Security program.

The Table Of Contents:

Medicare For All - Are We There, Yet? - 12/11/13

Cut Social Security? H*ll No!!! - Increase It & Make It Better!!! Part 1 - 12/10/13

A Progressive Payroll Tax 2 - Mid & Upper Wage - 12/9/13

A Progressive Payroll Tax 1 - Low Wage - 12/8/13

New Sources Of Revenue 3 - Capital Gains And Dividends - 12/6/13

New Sources Of Revenue 2 - Rentals From Real Estate - 12/5/13

"I'm Also Unemployed" - How The Way We Work Has Changed - 12/4/13

From The Archives 3 - The BEST Mod Plan Factsheet - 12/3/13

New Sources Of Revenue 1 - New State & Local Employees - 12/2/13

Data, Statistics, Number Crunching & Exactitude - 12/1/13

Scrapping The Cap Is A Crappy Idea - 11/30/13

From The Archives 2 - The YouTube Videos - 11/29/13

From The Archives 1 - A Published Op Ed Piece - 11/28/13

A Seat At The Table - 11/27/13

Social Security History & Benefit Info - 11/26/13


A Few BEST Social Security Modernization Plan Basics - An Introduction – 11/25/13 

Wednesday, December 11, 2013

Medicare For All - Are We There, Yet?

Medicare For All - Are We There, Yet?

While Medicare is a program which is separate from the Social Security program, the two programs are closely intertwined. In most cases, people enroll for their initial eligibility to the Medicare program via Social Security offices, its teleservice centers, or its online network.

Medicare’s website is www.cms.gov . Here is some basic information about Medicare: http://www.cms.gov/Medicare/Medicare-General-Information/MedicareGenInfo/index.html .

Many feel that the Affordable Care Act was a good first step toward universal single-payer health care in the United States. Medicare is essentially a single-payer system but it currently primarily provides coverage only for those who are age 65 or have been receiving Social Security disability benefits for two years.


In my December 10, 2013 post, I proposed a one-time early-out Social Security retirement plan to lower unemployment and help younger workers obtain better jobs. One of the stumbling blocks I noted in my post that is keeping older workers from retiring earlier is abysmally low savings interest rates. Another disincentive, which I did not note on December 10, 2013, is the lack of availability of health insurance for those who retire before age 65.

If the House and Senate can get it together and pass a comprehensive Medicare-For-All law that would be great.  However, until that happens, I propose gradually lowering the Medicare eligibility age in five year increments on an annual or bi-annual basis. Lowering the Medicare eligibility age to age 60 in 2014 would permit all those interested in taking advantage of my add two years to your age early-out to also have Medicare coverage, thus making the buy-out more appealing. Another benefit of incremental implementation of Medicare for all is that by only extending to those 60 or older in 2014 there would be time to work all the bugs out that will be present in a full scale rollout of Medicare to and for all. The five year incremental roll out would be close to seamless.

More importantly, passing an incremental five year at a time Medicare-For-All roll out – at least for the first five year lowering segment of the eligibility age - should be a “no-brainer,” something that our congress is capable of quickly doing.


Tuesday, December 10, 2013

Cut Social Security? H*ll No!!! - Increase It & Make It Better!!! Part 1

Cut Social Security?  H*ll No!!! Increase It & Make It Better!!! Part 1

Social Security Program is the United States’ BEST government program. Any talk regarding cutting Social Security is pure nonsense and borders on being malevolent. Benefits should be thoughtfully expanded taking into consideration changes in the US economy over the last few decades, such as the erosion of private pensions, the current attack on public pensions, and the virtual elimination of any significant interest being paid by savings banks and credit unions.

Social Security is the highest and the brightest star which shines on America. It shines on every American, tall or short, male or female, no matter where they live, no matter whether they believe in a religion or not, young or old, healthy or disabled, families who lose a wage earner, the poor, the middle class, or the wealthy. It has a major far-reaching influence on our economy. When the eagle flies on the 3rd day of the month or on the 2nd, 3rd, or 4th Wednesday of the month, the economy takes notice.

Yes, it does need some expansion and adjustments to eliminate a few passing shadows, but it still shines brightly on us all.

Its brilliance and its prominence in the sky and in our universe make it the perfect instrument to employ it to show us the way and use it as a tool for the greater good of America.

I will address potential ongoing changes to the Social Security program in future posts, but today I’d like to throw out an idea to use Social Security to solve two major problems facing America: high unemployment and stagnant earnings and job opportunities for the nation’s twenty and thirty years olds, many of whom are college graduates but are still struggling to make ends meet and are often working two or three jobs.

Is there any interest in these issues out there?

Here it is!  Offer a one- time Social Security “early out” for Social Security retirement benefits. What will this do? If it closely follows the specifics of my proposal, it should lower the unemployment rate and it should free-up the jobs of those taking the early-out, many of which pay reasonably well, and which pay more than the jobs currently held by younger workers who can then fill the slots left by many of the early-out retirees.

Exactly how should it work? (This will apply to Social Security “retirement” benefits only, not widow’s benefits or spouse’s benefits.)  The proposed solution is to add two years to anyone’s age for anyone who is willing to retire immediately upon enactment during a 12 month window of opportunity. This will apply to anyone age 60 to 68 during the early-out window, who for benefit age reduction purposes will then become 2 years older. This will also apply to those who are beyond their full retirement age (FRA), currently age 66 and are delaying their retirement to boost their benefit amount by earning delayed retirement credits (DRC’s). This early-out will not change the formula or calculations on how the early-out person’s benefit is calculated except for the amount of reduction due to age or the number of DRC’s credited. (For those retiring before age 62, before the numbers for their benefit calculation indexing year are available, there may be some projected numbers used that will be adjusted upon age 62 attainment.

However, anyone who takes advantage of this early-out will be required to fully retire.
Using the worker’s actual age, any earnings which exceed the annual earnings test level whatsoever for a person using their real age before becoming eligible for the Full retirement test by a person who retired prior to their full retirement age ($15,120 in 2014) would require a full repayment of all payments received and a voiding of the add two years to your age eligibility. Similarly, any delayed retirement credits paid for months that a post full retirement age early-outer works and earns any income would constitute an overpayment.

The purpose of the early out is to free up jobs for younger workers and to reduce the unemployment rate. Any attempt to collect benefits based on the early out without really retiring will create an overpayment which must be repaid.

One of the reasons why older people are staying in the workforce longer is the abysmally low interest rates being paid on safe investments such as savings accounts or certificates of deposit. As part of the legislation required to be able to offer this one-time early out Congress, should also provide strong incentives to offer “old geezer” savings accounts which pay higher interest amounts on safe investments. If senior drivers can get lower car insurance, there must be some way to legislate higher interest rates for seniors that will permit them to retire with dignity and let the younger generation move up and take their places in the workforce.

The funds for the early out should come for general revenues and it is quite possible that some of the savings could come from reduced Unemployment Compensation costs.

Social Security is the United States’ brightest shining star and beacon. Why not creatively use it to effectuate even more favorable outcomes in our society? I believe this is an idea worth pursuing.
   
Update: Adding 2 years to someone’s age could boost their monthly benefit as much as 13%, or roughly the same amount it would have been increased, anyway, had they merely waited two years, which many of these workers were planning to do before they retired. This is only an approximation, as additional years of work in some instances serves to increase one’s benefit if the earnings in any single year are one of the worker’s 35 highest years of indexed earnings used in the Social Security formula. 






Monday, December 9, 2013

A Progressive Payroll Tax 2 - Mid & Upper Wage Workers

A Progressive Payroll Tax 2 - Mid & Upper Wage Workers

My December 8, 2013 post discussed Tier One of the progressive payroll tax which offers a 3% rebate for workers/self-employed whose earnings for a calendar year do not exceed the federal minimum wage level equivalent for a full-time worker. The rebate is payable to workers, but not employers, upon filing a federal tax return and it does not in any manner change an employer’s requirement to withhold payroll taxes in the established manner.

Tier Two is the status quo. Payroll taxes and self-employment taxes will remain the same as they have been for a number of years. Here is a link which provides the Maximum Taxable Earnings since the Social Security program began: http://www.socialsecurity.gov/planners/maxtax.htm .

Tier Three will require employees and the self-employed to pay a higher FICA/SECA tax rate for a portion of their earnings. This higher rate applies only to the employee share and will not apply to the employer’s tax share. The maximum taxable earnings cap will not be scrapped.

While this sounds complicated, in this computer era its effectuation will be simple. Currently, employees pay a 7.65% tax which consists of 6.2% toward the Social Security trust fund and an additional 1.45% Medicare tax which is not subject to the maximum taxable earnings cap.

I am proposing that earnings “within” this new Tier Three zone will be taxed at a 8.2% rate (or a new total 9.65% rate). Thus, an employee will pay 7.65% (total) for a portion of their earnings that fall within Tier Two and 9.65% (total) for the remaining portion of their earnings which fall within the Tier Three zone.

The self-employed will be responsible to pay an additional 2% (not 4%) for all their earnings that fall within the Tier Three earnings zone.

Employers will be required to withhold this higher tax, but workers with multiple jobs may have to pay the additional required amounts via their federal income tax return if necessary.

How is Tier Three defined? As we have previously noted, the maximum taxable wage base increases yearly (or, as we noted in a prior post, the law should be changed so that it automatically increases each year). Upon enactment of the BEST Social Security Mod Plan, Tier Three will begin with the first Maximum Taxable Earnings increase after enactment and will continue for the following nine years for a total of ten years. Tier Three will consist of a rolling ten year zone where the cumulative amounts of increases in the Maximum Taxable Earnings wage base will be taxed at the higher 8.2%/9.65% rate.

Here is an example: The BEST plan is enacted into law in 2014. Let’s assume for simplicity sake that, in 2015 and for the next 11 years, the taxable wage base increases $3,000 each year.  The 2014 amount of $117,000 increases in 2015 to $120,000. The portion of all earnings greater than $117,000 will be subject to paying the 8.2%/9.65% rate. This is year one. 2016 will be year two. If the taxable wage base increases in 2016 to $123,000, all workers will pay 6.2%/7.65% for their wages up to $117,000 and the higher rate for wages over $117,000 up to $123,000. Each year the wage base increases and after ten years in 2024, a worker would be paying 6.2%/7.65% payroll tax for earnings up to $117,000, but 8.2%/9.65% for any amount of earnings between $117,000 and $147,000. Since Tier Three consists of a rolling ten year zone, in 2025, the wage base increases to $150,000 and an earlier year drops out and the portion of earnings subject to the higher 8.2%/9.65%  now fall in the zone between $120,000 and $150,000 thereby preserving a ten year Tier Three zone or range.

The Three Tier system will raise new trust fund revenues without increasing benefits and without scrapping the cap and without creating a situation where either benefit payouts will significantly increase due to drastically increased average earnings or the situation wherein high wage earners who are forced to pay unlimited increases in payroll taxes rise up in opposition to the Social Security program and program confidence is eroded.






Sunday, December 8, 2013

A Progressive Payroll Tax 1 - Low Wage Workers

A Progressive Payroll Tax 1 - Low Wage Workers

The Social Security payroll tax (or FICA or SECA tax) is often referred to as a regressive tax. That is because even low wage workers or self-employed businesses are required to pay the tax even if the income level is so low that no federal income taxes are payable by these individuals.

Having to pay this mandatory tax is not necessarily a bad thing because paying the tax provides the workers with retirement, survivor, and disability coverage or insurance.

On the other hand, the formula which is used to determine the amount of Social Security benefits which are payable is a progressive formula in that low wage workers do receive a benefit which represents a higher percentage of their average wages. High average wage workers receive a lower percentage. This is because a person’s unreduced benefit amount is calculated using a three tier or bend point formula. These tier or bend points are different depending on the year a worker first become eligible for benefits.

For 2014, here is how it works. (Note that this is more complicated – so don’t try this at home! I’m only citing the information here to illustrate how the benefit amount formula and its progressive bend points or tiers work.) In 2014 the monthly benefit for a first eligible worker is the sum of the 3 following amounts:
1. 90% of the first $816 average, indexed monthly earnings
2. 32% of the earnings over $816 and up to $4917 average, indexed monthly earnings
3. 15% of any average, indexed monthly earnings over $4917.

Thus, a worker first eligible in 2014 whose average indexed earnings over their working career were $816 times 12 months or $9792 would receive a benefit, before any reductions, of 90% of this amount or $8812. All others whose average, indexed monthly earnings exceed the first bend point would receive a benefit that represents a lower percent than 90% of their average, indexed monthly earnings, with high average earners receiving the lowest percentage of their average, indexed monthly earnings.

The progressive benefit formula using the three tier system of bend points is a good thing, but it is not enough. The BEST Social Security Modernization Plan is also proposing that Social Security adopt a progressive three tier payroll tax system to make it less regressive for low wage workers. However, at the same time I am generally opposed to any sort of means testing for Social Security. Social Security benefits represent an earned right and means testing only serves to erode confidence in the very important Social Security program.

Here is how the payroll tax currently works for employees in 2014. An employee pays 6.2% into the Social Security trust fund plus an additional 1.45% Medicare tax. The 6.2% tax must be paid on all wages up the and including the 2014 payroll cap of $117,000. The 1.45% Medicare tax is not subject to the cap and must be paid on all wages. The employee’s employer pays a matching equal amount. Thus, the total amount paid into the Social Security trust fund is 12.4% payroll tax and 2.9% Medicare tax for a total of 15.3%.

The self-employed currently pay the equivalent tax of both the employee and the employer or 12.4% into the Social Security trust fund and 2.9% to the Medicare trust fund for a total of 15.3%.

Here is what I propose: All workers whose earnings for the entire year are the equivalent of the wages for a full time worker earning the federal minimum wage shall be eligible for a 3% rebate of the payroll taxes they paid for the year, refundable at the time a federal income tax return is filed for that year. The 2013 federal minimum wage is $7.25 an hour. Thus, for a 40 hour week for 52 weeks, this comes to $15,080. A 3% rebate could be as high $452.40.

The rebate is payable at the time a federal income tax return is filed. It is not means tested like the Earned Income Tax Credit (EITC). Anyone whose total earnings for the year do not exceed $15,080 would be eligible, including part-time workers, even if their hourly wage exceeds the minimum wage as long as their total combined wages and self-employment earning for the year are $15,080 or less and regardless of other income and resources. This annual amount will increase as the minimum wage increases.

The self-employed whose combined wage and self-employment earnings for the year are $15,080 will pay a 9.3% self employment tax rather than the usual 15.3% SECA tax rate.

The idea for this proposal predates the 2% payroll tax rebate, of 2011-2012, and it is possible that the 2% idea may have stemmed from The BEST Social Security Mod Plan’s many earlier publicity attempts. The “BEST” plan’s idea is better for 2 reasons: It is more progressive in that it provides a 3% tax reduction for lower wage workers, and since the money is only refundable upon filing a tax return, those who are eligible will receive a lump sum rather than a small weekly increase. Having $200-$400 to spend all at once could enable someone to make a much needed purchase and that spending might even boost the economy.

Who will tier one of the progressive payroll tax benefit? In addition to low wage workers, it could benefit struggling students who work part time or during the summer, retired seniors who work part time, or start up self-employed businesses. It would even benefit those with modest level of rental income or short-term capital gains who upon the new definitions of work will be required to contribute Social Security payroll taxes on their earnings.

It may particularly serve to boost confidence in the Social Security program of younger workers and students.

Where would the funds for this 3% rebate come from? It could come from the Social Security trust fund, but legislation could direct these refund amounts to be paid from general tax revenues, thereby boosting the Social Security trust fund. Keep in mind, these refunds will only be made if they are claimed via a federal tax return.








Friday, December 6, 2013

New Sources Of Revenue 3 - Capital Gains And Dividends

New Sources Of Revenue 3 - Capital Gains And  Dividends

My third source of new Social Security trust fund revenues is capital gains and dividends. I grouped them together as they often may be closely related.

Currently capital gains are differentiated by whether they are short-term capital gains or long-term capital gains. Assets held a year or less are short-term capital gains, while those held longer than a year are defined as long-term capital gains. Capital losses are deductible and used in determining net capital gains by subtracting long-term losses from long-term gains. Long-term capital gains are generally taxable at no higher rat than 15%, sometimes lower. However, short-term capital gains are subject to taxation at your ordinary tax rate which can be much higher. Here is IRS Topic 409 on this subject: http://www.irs.gov/taxtopics/tc409.html .

The Balanced, Equitable, Solvent, Tested (BEST) Social Security Modernization (Mod) Plan proposes two changes here. One is defining short-term capital gains as earnings subject to the Social Security tax. The second is extending the period that an asset must be held before it is defined as a long-term capital gain from more than one year to more than 30 months.

Remember, these people are actively, and diligently working by using capital to earn money.

These changes will affect several things. More funds will be credited to the Social Security trust funds. General tax revenues will also be increased as a result of having more capital gains being defined as short term capital gains causing them to be taxed at higher income tax rates. The shift to defining long-term capital gains to longer than 30 months may also motivate investors to consider holding on to investments for longer than a year to avoid paying both Social Security taxes and income taxes at a higher rate. This incentive may also serve to decrease financial speculation which, for example, causes commodity inflation like those documented causing higher oil prices.

Dividends are generally paid to those who invest money in corporations as a form of profit distributions. http://www.irs.gov/taxtopics/tc404.html . Dividends are categorized as either ordinary dividends or qualified dividends. Ordinary dividends are subject to income taxes at the rate of ordinary income, but qualified dividends are taxed at lower capital gain tax rates. In order to meet the requirements as qualified dividends the stock has to be held for a certain period. Perhaps the qualification requirements to meet the definition of a qualified dividend could be made more stringent and more reflective of the proposed new 30 month demarcation which would differentiate short-term and long-term capital gains.

While I am not currently proposing that dividends be redefined as earnings subject to Social Security taxes, they could be considered to be defined as wages whenever the stock is held for 30 months or less.

In recent years, there has been considerable discussion of a stock transfer tax. http://www.web.gpnys.com/?p=7538 . The BEST Social Security Mod Plan’s proposal to tax short term capital gains as wages/self employment earnings is a better idea.

What about corporate short-term capital gains or corporate earned dividends that cannot be attributed to be earned by individuals? This is a labyrinthal concept and may be difficult to clearly untangle, but certainly, corporations should be required to make at-large contributions to the Social Security trust fund if determined appropriate.

After all, to quote 2012 presidential candidate, Willard M. Romney, “Corporations are people, friend.” http://articles.washingtonpost.com/2011-08-11/politics/35270239_1_romney-supporters-mitt-romney-private-sector-experience .

Update: I want to add that earnings and Social Security trust fund contributions from short-term capital gains workers will have the added bonus effect in that workers who earn their living from capital gains may have much longer working careers than those who perform physical labor related work. Rather than the typical 40-45 year working career, capital gains workers are likely to have 60+ year working careers.

Since Social Security payments amounts are presently calculated using the highest 35 years of indexed earnings, capital gains workers have the potential to make larger overall long-term contributions to the Social Security trust fund without significantly increasing their monthly benefit amount.


Thursday, December 5, 2013

New Sources Of Revenue 2 - Rentals From Real Estate

New Sources Of Revenue 2 - Rentals From Real Estate

A second source of new revenue that the BEST Social Security Modernization Plan proposes to infuse additional funding into the Social Security trust fund is rental income from real estate.

Under current law rental income is taxable if one of three conditions is met: https://secure.ssa.gov/apps10/poms.nsf/lnx/0301803600 . The second of these three conditions is when “personal services” are provided as part of the rental agreement. These are defined here: https://secure.ssa.gov/apps10/poms.nsf/lnx/0301803624 .

I feel that those who rent real estate are working by way of their financial investment, their diligence, and their vigilance, in not only protecting their investment, but also in their quest to earn money via their investment. The current exception is admittedly rather arbitrary and all rentals should be subject to paying the SECA tax.

In fact, working and earning money via investments and rentals of real estate has become a very trendy way of working and earning a living, perhaps precisely because of the current Social Security tax exemption loophole.


Now once the law is changed to remove the exception to Social Security coverage rentals from real estate is it a fairly straightforward process to collect the tax from the self-employed: http://www.irs.gov/taxtopics/tc554.html . However, if even the same individual is incorporated how do we collect the “compulsory” Social Security tax? In fact, has Social Security been collecting the compulsory tax from those landlords who have been performing personal services if those landlords are incorporated? I do not think so. While a corporation may require an employee to be paid a salary, the additional net income from real estate rentals should also be subject to the FICA/SECA tax.

This is why I want a seat at the table when Social Security is reformed. I propose that net earnings from rentals from real estate be subject to the 12.4 per cent Social Security tax. This tax should be compulsory and the monies should be credited to the Social Security trust fund. The 12.4% could be a deduction from corporate earning subject to income taxes, but it should not reduce the net earnings from real estate. If the landlords pass on the SECA tax to renters, then the added pass along amount will increase the net rental income thereby causing a further increase to the amount of Social Security taxes payable.

This newly proposed Social Security tax differs from currently existing taxes as the money paid into the Social Security trust fund will not be credited to any individual, but it will boost Social Security trust fund solvency. Keep in mind that Social Security is a social insurance program where shared contributions proved retirement, survivor, and disability insurance to all participants. It is not that unlike the situation of am unmarried worker, without children or dependent parents, who works and pays into the trust fund right up to her/his untimely death before age 62. No benefits ever are paid to anyone on this worker’s account. Yet, her/his contributions served to keep the program solvent.

However, if we can all agree that earning from real estate should be subject to Social Security taxation, then we should be able to collect that tax regardless of whether these earnings are from the self-employed or a corporate structure.

In addition to being a new source of revenue for the Social Security trust fund, there is another reason why making rental income and stock market gains and capital gains subject to Social Security taxation will make the trust fund solvent: persons or corporations generally receive these types of income for longer periods of time than the typical worker. Monthly Social Security retirement benefits are calculated by using the worker’s highest 35 years of earnings after they are indexed for inflation. A typical worker might have 40 years where they pay into the Social Security trust funds. Thus Social Security collects Social Security taxes for an extra 5 years which do not affect the worker’s benefits at all. This benefits the trust fund. The worker who has rental income, stock market gains, or capital gains may have, for example, 55 years of creditable earnings. Yet, only 35 years affect the worker’s benefits. In this case rather than having an extra 5 years to boost the trust funds, there will be 20 years of additional tax receipts to keep Social Security solvent.

Update: Some may wonder, what about the old venerable owner-occupied duplex? I’m not in favor of modernizing Social Security by adding exceptions to coverage. However, a realistic compromise might be to exclude owner-occupied rental income for duplexes only, beginning with the year in which the owner reaches full retirement age, which is currently age 66 but is scheduled to top out at age 67 in the future.







Wednesday, December 4, 2013

"I'm Also Unemployed" - How The Way We Work Has Changed



“I’m Also Unemployed” – How The Way We Work Has Changed

During, the 2012 US election, Republican presidential candidate, Willard M. Romney, quipped, “I’m Also Unemployed.”  http://thecaucus.blogs.nytimes.com/2011/06/16/romney-im-also-unemployed/ Some interpreted this as a joke, an attempt at humor. I did not. What Mr. Romney was saying is that under the current Social Security law definition of work, despite his vast earnings, he was not “working.” This is why The BEST Social Security Modernization Plan proposes updating the definition of work to bring it into the 21st century.

The way many of us work has changed. Some of us still perform physical labor like manufacturing, construction, others in desk-type job including teaching, but many now earn their living by capital investment in areas like rentals, the stock market, and other forms of financial speculation. Make no mistake: those who earn money via financial investment are working. They are merely using their capital, or the capital of others, rather than physical or mental skills to do so.

As I noted in my November 26, 2013 post, Social Security has a history of change and progressively rolling out additions and improvements.

Section 211 of Title II of the Social Security Act was written to specifically exclude rentals from real estate, stock market gains, and capital gains from the definition of covered self-employment income at the time around 1950 when self-employment income became covered under the Social Security program. The fact that it had to be specifically excluded indicates that there had been some consideration then of including this type of income as a self-employment income. Here is a reprinted section of the law:

*****
Sec211[42 U.S.C. 411]  For the purposes of this title—

Net Earnings From Self-Employment[163]

(a) The term “net earnings from self-employment” means the gross income, as computed under subtitle A of the Internal Revenue Code of 1986, derived by an individual from any trade or business carried on by such individual, less the deductions allowed under such subtitle which are attributable to such trade or business, plus his distributive share (whether or not distributed) of the ordinary net income or loss, as computed under section 702(a)(8) of such Code, from any trade or business carried on by a partnership of which he is a member; except that in computing such gross income and deductions and such distributive share of partnership ordinary net income or loss—
(1) There shall be excluded rentals from real estate and from personal property leased with the real estate (including such rentals paid in crop shares, and including payments under section 1233(2) of the Food Security Act of 1985 (16 U.S.C. 3833(2)) to individuals receiving benefits under section 202 or 223), together with the deductions attributable thereto, unless such rentals are received in the course of a trade or business as a real estate dealer; except that the preceding provisions of this paragraph shall not apply to any income derived by the owner or tenant of land if (A) such income is derived under an arrangement, between the owner or tenant and another individual, which provides that such other individual shall produce agricultural or horticultural commodities (including livestock, bees, poultry, and fur-bearing animals and wildlife) on such land, and that there shall be material participation by the owner or tenant (as determined without regard to any activities of an agent of such owner or tenant) in the production or the management of the production of such agricultural or horticultural commodities, and (B) there is material participation by the owner or tenant (as determined without regard to any activities of an agent of such owner or tenant) with respect to any such agricultural or horticultural commodity;
(2) There shall be excluded dividends on any share of stock, and interest on any bond, debenture, note, or certificate, or other evidence of indebtedness, issued with interest benefits or in registered form by any corporation (including one issued by a government or political subdivision thereof), unless such dividends and interest are received in the course of a trade or business as a dealer in stocks or securities;
(3) There shall be excluded any gain or loss (A) which is considered under subtitle A of the Internal Revenue Code of 1986 as gain or loss from the sale or exchange of a capital asset, (B) from the cutting of timber, or the disposal of timber, coal, or iron ore, if section 631 of the Internal Revenue Code of 1954[164] applies to such gain or loss, or (C) from the sale, exchange, involuntary conversion, or other disposition of property if such property is neither (i) stock in trade or other property of a kind which would properly be includible in inventory if on hand at the close of the taxable year, nor (ii) property held primarily for sale to customers in the ordinary course of the trade or business;
*****
It is now time to acknowledge that those who earn their livelihood from any of these three sources of income are working and should be subject to paying Social Security taxes, which for the self-employed are sometimes referred to as SECA taxes: Self Employment Contribution Act taxes, which is a comparable term to FICA or Federal Insurance Contributions Act, the comparable term for the tax for employees.

While, requiring the self employed to contribute Social Security taxes to the Social Security Trust Fund for rental income, stock market investment gains and other capital gains is an important component of THE BEST Social Security Modernization Plan, more must be done.

I suspect that there is a lower percentage of self-employed businesses than in the 1950’s and that more businesses have adopted some form of incorporation. From the IRS website, here is a list of types of business structures: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Business-Structures .

I will be proposing in future posts that these three types of profits which are earned by corporations should also require corporation businesses to make comparable contributions to the Social Security trust fund.







Tuesday, December 3, 2013

From The Archives 3 - The BEST Mod Plan Factsheet

From The Archives 3 - The BEST Mod Plan Factsheet

Today, I am reprinting a Factsheet from November 11, 2010:



The Balanced, Equitable, Solvent, Tested (BEST)
Social Security Modernization (Mod) Plan


Overview

  • The BEST Social Security Mod Plan is superior to other Social Security solvency plans because it does not raise the retirement age, does not reduce benefits, and it does not privatize Social Security.

  • It works by updating the definition of work and earnings and adding new classes of workers to the list of those who pay Social Security payroll/self-employment taxes.

  • It corrects a defect in the law which causes many high earners to pay income taxes at lower rates than low and mid income workers.

  • It adds progressivity to the Social Security payroll tax rate, creating a three tier system, and also corrects a defect in the law which prevents the Social Security wage base from increasing during periods of low inflation and stagnant wages.

  • It does not eliminate the income wage cap, nor does it significantly raise it. While eliminating the income cap would bring more revenue into Social Security coffers, it would also significantly increase the amount of benefits paid out to these high earners, creating an acceleration of cash outflow from the Social Security trust funds.



New Sources of Program Revenue

  • Requires non-covered state and local governments to pay Social Security taxes for new employees during their first five years of employment. This insures that these workers will be covered for Social Security disability benefits during the transitional period when these workers are not yet vested in the state or local retirement plan.

  • Requires rental income from all real estate rentals to be subject to Social Security taxes.

  • Requires short term-capital gains to be taxed as wages or self-employment earnings. These investors are working and should be required to pay taxes at the same rates as other workers.

  • Redefines short term capital gains to be all investments held thirty or fewer months, an increase from the current twelve month rule.

  • These newly defined forms of Social Security Earnings would be subject to both the Social Security payroll/self employment tax and paying income taxes at the current marginal tax rate instead of the lower long term capital gains tax rates.


Making The Program More Progressive

  • Lowers the payroll tax rate for employees/self-employed whose total annual earnings are at or below the federal minimum wage level from 7.65%/15.3% to 4.65%/9.3%.

  • Increases the payroll tax rate for that portion of wages which exceeds the 2010 wage cap from 7.65%/15.3% to 9.65%/17.3%. This higher tax rate will apply to only that portion of earnings which exceed the 2010 wage cap over a rolling ten year period. After ten years, the 2011 portion which exceeded the 2010 level will revert to the original 7.65%15.3% rate. Rather than removing the wage income cap, this will serve to increase revenue without causing benefits to be increased.

  • Corrects a defect in the law which caused the income cap to stagnate for 2010 and 2011, by recommending corrective legislation which increases the wage income cap to increase annually by the higher of either the current methodology or by the average of the ten previous yearly increases from 2000 to 2009 or the last ten years. Using the figures from these ten years, the 2011 wage cap base would increase by $3,420 from $106,800 to $110,220.


What The BEST Social Security Mod Plan Accomplishes

  • One effect of the BEST Social Security Mod Plan is that low earnings, part-time, younger & older workers as well as many small start-up businesses will get a payroll tax break. This will encourage these workers to enter or stay in the workforce and will help to inspire Social Security program confidence.

  • Adding a payroll higher tax rate to only that portion of earnings which exceed the wage base or cap over a rolling ten year period will increase program revenue without triggering higher benefit outlays.

  • The three new types of work and earnings subject to the payroll/self employment tax will provide an additional source of program revenue, and provide a source of additional federal income tax revenues without the consideration of whether or not to extend the Bush tax cuts.

  • Improves the long-term solvency of the Social Security program.


Join the Best Social Security Mod Plan Team!




November 11, 2010

Monday, December 2, 2013

New Sources Of Revenue 1 - New State & Local Employees



New Sources Of Revenue 1 – New State & Local Employees

The BEST Social Security Mod Plan proposes to improve Social Security’s solvency without increasing the retirement age or cutting benefits by adding new sources of revenues to the trust fund.

One source is requiring newly hired State and local government employees to be covered by the Social Security program and to contribute payroll taxes to the Social Security trust funds.

Currently, some State and local governments participate, but some do not. They were offered the option of participating and some governments have opted in.

As background information, the federal government’s original pension and retirement system, the Civil Service Retirement (CSR) system predated the advent of the 1935 Social Security program. These federal employees did not pay Social Security payroll taxes. However, on January 1, 1987 revamped its retirement programs and effectuated the Federal Employees Retirement System (FERS) which made paying into Social Security and collecting Social Security benefits an integral part of the federal government’s retirement system.

States and local governments were required to pay the 1.45% (2.90% including employer share) Medicare payroll tax in the 1990’s. At that time, State and local employees who were not under any kind of pension plan were also required to be covered by Social Security and to contribute payroll taxes. An example of this type of employee could be a school crossing guard, a part time employee or substitute teacher. However, the definition of a “pension plan” was pretty loose and some governments merely set up minimal 401k type accounts for these employees to get around the law change.

Given that many State and local pension funds are very stressed, it may make sense for them to revamp their pension programs and join Social Security. Historically, whether or not to mandate participation in the Social Security program has been viewed as a “States’ Rights” issue.

As noted in my November 26, 2013 post, one of the important features of the Social Security program is that contributors are eligible for Disability benefits. A thirty one year old, or older worker, is required to have paid Social Security payroll taxes for five of the ten years immediately preceding the onset of a disability. This is known as being “currently insured” for disability benefits.

Newly hired State and local employees who stop paying Social Security payroll taxes immediately upon their hiring, lose their currently insured status after working in non-covered State and local employment within five years or sometimes more quickly depending on their work history. Unfortunately, for these workers, they may not be vested in their new non-covered pension plan, and if they become disabled will be ineligible for Social Security disability or a disability payment from their State and local employer. As a result, despite having a full work history, these workers are force to rely on public assistance for their existence due to their inability to work.

Thus, at minimum, The Best Social Security Modernization Plan proposes that all newly hired State and local employees be required to pay Social Security payroll taxes for a minimum of five full years from the date they are hired. This will provide them and their families with much needed disability insurance protection during their working transitional period.

Mandating all newly hired State and local employees to permanently pay Social Security payroll taxes should also be considered.





Sunday, December 1, 2013

Data, Statistics, Number Crunching & Exactitude



Data, Statistics, Number Crunching & Exactitude

Before I go further, it is important for all to understand that I do not have access to all the data and statistics that are available to the Social Security Administration (SSA) and the Internal Revenue Service (IRS). In addition, the BEST Social Security Mod Plan is a broad, extensive framework for Social Security reform and for preventing program cuts and for advocating program expansion. Thus, many of my proposals could be changed, tweaked or adjusted as long as my broader goals are preserved.

For example, I do not know the exact affect implementing a more progressive payroll tax will have on the Social Security trust funds. While my proposal to define short term capital gains as wages is not negotiable, the length of time differentiating short term from long term capital gains might be, depending on how they affect the Plan.

However, I do fully support my proposals and my goal is to gain widespread support for the plan as a whole. Once that occurs, I expect that SSA & IRS actuaries will be expected to provide detailed analyses to determine each component’s effectiveness and the effect of any modified or adjusted scenarios.

Future Posts: New Sources of Revenue, A Progressive Payroll Tax, and more …