Non-tip workers won't remember (or even notice) the phase-out. The damage is done and I agree it will incentivise people to tip less even after the phase-out.
Extending the 2017 tax policies, specifically continuing the capping of SALT deductions, leads to higher taxes for high income earners. That deduction was worth $100K to a $1M/year income in a 10% State income tax state earner. Even more when you add in property taxes.
If they had not been extended the taxes for those high earners would have dropped for 2025 and beyond.
The bottom 50% pay no taxes and the top 1% still pay 40+% of federal taxes.
Yeah this argument is so silly: "the top 1% pay 60% of income tax" oh okay, so as they get closer and closer to escape velocity from the rest of us, that number will climb to 1% paying 70%, then 80%, then 90%, so your argument to tax them gets weaker while the functional need to tax them gets stronger.
> The Federal Insurance Contributions Act (FICA /ˈfaɪkə/) is a United States federal payroll (or employment) tax payable by both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers.
7.65% of your check until you hit the cap. Employer pays a similar amount.
Additionally, removing the cap on FICA contributions would likely push Social Security back into long-term solvency, but that would be far too much of a burden on the top 1% of wage earners so it’ll never happen.
It wouldn’t _have_ to, that’s a political decision not a mathematical requirement.
But, even if you did it would still help tremendously and possibly still be sufficient. There’s diminishing returns where lower income people get a higher percentage of their income as a social security benefit. As long as that policy is maintained the ultra high wage earners would be contributing far in excess of the benefit they get paid back out
Currently, the amount you put in social security over the years determines how much you get when you retire. Why would anyone support a system that is suppose to be to help you in retirement where you are paying an unlimited amount into a fund and then capping how much you get out?
Because they likely already have more than enough and have been blessed by society/civilization as a top earner who will enjoy a comfortable retirement without any social security, and they’ll be better off if other people that didn’t earn and save as much are able to retire without being destitute in old age.
That perspective could be someone who is willing to say “You know what, I already have enough, let’s make sure the floor is raised for everyone.” Someone who believes more in individualism would probably disagree with that perspective.
You think someone making just over $175K (the current social security taxable maximum amount) is able to save enough to ensure a comfortable retirement?
> Currently, the amount you put in social security over the years determines how much you get when you retire.
Currently, there's also a maximum amount of benefits. That could easily stay.
> Why would anyone support a system that is suppose to be to help you in retirement where you are paying an unlimited amount into a fund and then capping how much you get out?
Same reason people pay school taxes if they don't have kids. Because we live in a society, and we tax people to fund things like this.
So you want to raise the marginal tax rate by 12.4% (employee + employer) without the person getting any benefit?
> Same reason people pay school taxes if they don't have kids. Because we live in a society, and we tax people to fund things like this.
And educated children, police, roads, etc benefit society and we were all at one point kids who could take advantage of public education, I don’t even have a problem paying more in taxes for universal healthcare that will reduce my + employer expenses on my healthcare.
But paying an extra 12.4% for what was suppose to be a retirement account that I don’t get any benefit from and reduces the amount I can save toward my own retirement is a bridge too far. Since 2018, I’ve been slightly above the increasing social security maximum. So it’s not that I’m one of the 1%.
It very much is. The more you put in the more you get out. From a financial accounting standpoint, the money you put in goes in a “trust fund” that is constantly borrowed against. It was never suppose to be that way. Social Security taxes is not allocated for current retirees. It just goes in the general budget.
It is not a personal account where what you put in is yours. You don't have a balance that runs down to zero if you live too long.
"The more you put in the more you get out" is only because that is how your benefit is computed. It is not because there is a certain amount of your money somewhere.
Related: your benefit is calculated on your 35 highest income years, not the total sum of your contributions. [1]
Other thing worth noting: the AARP page about SS myths that literally says: "Myth #7: Social Security is like a retirement savings account." [2]
The trust funds for social security are used to pay for everyone's current benefits and the rest is invested [3]. The fact that it's supposed to remain solvent still doesn't make it a retirement account.
Yes: it feels like a retirement account because you pay in now and (hopefully) cash out later. But that is only a feeling.
And finally, I started my GP comment with "nit" as one of my first three words because I understand the distinction is somewhat hair-splitty, but it is still real and relevant to how we think about it.
> By law, some payroll taxes are the responsibility of the employee and others fall on the employer, but almost all economists agree that the true economic incidence of a payroll tax is unaffected by this distinction, and falls largely or entirely on workers in the form of lower wages.
Who is charged the tax and who pays it are different things.
In some states, the stores are the ones that owe the "sales" tax (which in these states are actually excise taxes that the business can pass through to the customer).
The "tax" the customer pays in those states is the "pass thru" charge. To make things fun, Hawaii imposes the excise tax (on the business) recursively on any tax charges passed thru to the customer.
this is roughly equivalent to saying "we don't pay import tariffs, importers do".
it may be technically correct, but it still impacts individual costs/income at pretty much exactly the same amount, because the costs are just passed down the chain.
> That deduction was worth $100K to a $1M/year income in a 10% State income tax state earner.
What? Income deductions are only worth the marginal tax rate on that income -- ~40% on $100k of income deducted is worth ~$40k. (With the $10k SALT cap, he can still deduct $10k, worth about $4k.) The top bracket being reduced from 40% to 37%, and starting at a higher income threshold, likely saved the same high earner more than $36k.
You’re over mathing here - GP is simply saying that if someone lives in a 10% income tax state and makes 1m, they can deduct $100k from their income (presumably because it was never really theirs).
They specifically make the claim that the TCJA is a net negative for this hypothetical $1M earner in a 10% income tax state, and I don't think that's true.
> The bottom 50% pay no taxes and the top 1% still pay 40+% of federal taxes.
This tells us nothing unless we know how their relative income shares. If the bottom 50% earns only 20% of all income (just an example) this is quite fair. If they earn 60%, it's unfair.
The number of people who just trot out this statistic without context is quite tiresome.
And of course everyone pays sales tax, property tax (even if they're a renter), payroll tax and so on.
What do you think should happen to you if your house is more valuable in a year than the year before, even if you aren't selling or otherwise leaving that house?
It seems quite reasonable that unrealized capital gains would be treated differently for "a primary residence" vs "a multi-billion-dollar stake in a company controlled by the owner."
A far better question is: Why does my company pay me in cash (40% marginal tax rate) instead of "equity shares of 'special partnership units' representing the value added by verteu's labor" (20% capital gains tax)?
Or: "How did Mitt Romney's Roth IRA grow to $100,000,000 with a $7,000 annual contribution limit?"
But do they do income-like taxes on the added value? This seems to be what people (GGP) are wanting from the increase in stock values, ie, unrealized capital gains.. which is frankly terrifying.
Well, if you want to tax the stocks that the wealthy own.. why wouldn't you want to tax the stocks that many regular people own? Where do you draw the line between the two?
Wealthy people's stock in retirement accounts would also not be taxed. This can be considerable: Peter Thiel's Facebook investment was made in an IRA.
I imagine there'd be some net worth number, excluding retirement accounts, that policy wonks could work up. You draw the line between "wealthy" and "regular" there. Or, more likely, several lines because there would be wealth brackets similar to income brackets. Without that it would be a regressive tax.
I don't disagree with that. But it's a much bigger discussion. Abolishing all property taxes means city and county finances need fundamental re-working.
Capital gains receive favorable treatment under US tax code but are also a realized gain by definition. That is you actually have to sell the asset and are taxed based on any profit earned.
An increase in the estimates value of your real estate holdings does not trigger a capital gain. Your municipality, however, may use it as an excuse to increase their assessment of the value of your property, which is used to calculate the tax they charge.
His net worth increased due to asset appreciation. Nobody physically transferred him any money and it can fall back down tomorrow. Should he get a refund if Oracle stock tanks?
He pays less next year because Oracle stock is worth less. Just like property taxes on people's houses.
The math on taxing unrealized gains or losses doesn't work out for the reasons you pointed out. Property taxes, on the other hand, have been working for a long time.
> He pays less next year because Oracle stock is worth less. Just like property taxes on people's houses.
Does he get a refund if he loses money or is it just tax if you win, tax if you lose, tax if it doesn't move?
I'll give a few feelings about property taxes. They are known up front when the purchase is made. There's an expectation that they remain reasonably consistent year over year. In that way they can be consistently planned for, enough that it's seen as more of a maintenance expense for upkeep of local services rather than a wealth tax. If my neighbor sells their comparable property for double what they paid for it a few short years I don't expect my tax bill to have a massive jump. In my experience the city's assessed values tend to lag the true market value pretty significantly. The goal appears to use the assessed value as a means to have some graduated component to the property tax. Being a local tax, any significant jumps are seem to be avoided by design, lest it trigger angry residents showing up at town hall meetings.
With a wealth tax it can be highly variable year to year and out of one's control. If stocks go way up you're on hook for paying those taxes. Especially if you're Larry Ellison with a controlling stake in Oracle, you could find yourself in the situation of having to liquidate assets to pay taxes, thereby reducing your control of your own company.
My main objection to a wealth tax is many of its proponents see it as a means of reducing inequality and "leveling the playing field". I find these positions to come from a place of envy and reject them of those grounds. Many arguing in favor also assume that federal confiscation of wealth inherently benefits the public, as if its some benevolent charity. The reality is more mixed. There is seemingly no limit to politicians' ability squander money on nice sounding projects that give them good headlines while enriching cronies and delivering questionable actual value. It's nice to imagine that all that money is going to roads, bridges, schools, and research, but a whole lot is also going to spying on the populace, subverting foreign governments, and blowing people up.
> With a wealth tax it can be highly variable year to year and out of one's control.
It could be designed to be closer to property tax.
> you could find yourself in the situation of having to liquidate assets to pay taxes
Maybe. There are many other ways: the stock pays enough in dividends to cover the tax, the owner has other sources of income, the owner borrows against the stock to pay tax, and so on. In many dual-class structures the privileged class stock becomes common stock when sold so some founders could maintain control even after selling.
Private companies are trickier but still manageable. I don't want to turn this into a long post though.
> many of its proponents see it as a means of reducing inequality and "leveling the playing field".
I see it as a way to reduce income taxes. Welfare states are currently funded by income and payroll taxes aka taxes on labor. For the math to work out you need higher and higher tax rates or more and more workers. And you're fighting an uphill battle because improving productivity constantly reduces the need for workers.
Instead let improved productivity pay for the welfare state. Stop penalizing people for working by taxing them more.
That doesn't answer the question I posed. First off it conflates "high-earning" with "wealthy". Plenty of early career doctors are high earners but have a negative net worth. They pay more taxes than someone with millions in net worth but lower "income".
Secondly, just because the median earner pays a 2% average income tax rate while the top 1% pays on average 21% doesn't tell us anything about its fairness. It ignores income share.
edit: fixed year typo