Herman Cain has been busy lately touting his 9-9-9 tax plan, which I wrote about on Monday. He has countered criticisms that his plan is regressive by noting that the current 15.3% payroll tax (which applies to the first $106,800 of income) would be abolished -- lowering the tax burden for the working class.
This analysis leaves many questions, the most important of which is the issue of paying for Social Security and Medicare -- which the payroll tax currently funds. Mr. Cain's apparent solution to this problem would be to gradually move away from Social Security towards the Chilean model where employers contribute a portion of their payroll to a private account. But this change would not solve the problems with the program.
In September, Mr. Cain had this to say about his proposed retirement system:
"I believe in the Chilean model, where you give a personal retirement account option so we can move this aside from an entitlement society to an empowerment society. Chile had a broken system the way we did 30 years ago. A worker was paying 28 cents on a dollar into a broken system. They finally awakened and put in a system where the younger workers could -- could have a choice -- novel idea. Give them a choice with an account with their name on it and over time we would eliminate the current broken system that we have."
First of all, Mr. Cain gets a few details wrong about the Chilean system. In Chile, employees must contribute a portion of their earnings to these private accounts -- there is nothing optional about the system. Also, Chile still spends significant public money on retirement: more than 2/3 of Chileans receive public support of some kind during their retirement.
More critically, Herman Cain's plan does not address the actuarial shortfall in Social Security, which is currently estimated as $5 trillion of present value over the next 75 years. In his proposal, individuals would contribute to an account that would finance their own retirement. Who then would finance the monthly SS checks due to those already retired and about to retire? In 2010, the annual benefit payments for Social Security began to exceed its annual inflows for the first time.
Current benefits to those in retirement or about to retire will not be cut -- that is a simple political reality. But simply adding these unfunded benefits to the deficit would be dangerous; it would increase the yearly deficit to more than 10% of GDP, which would be worse than the deficit in Greece.
Of course, Chile dealt with this problem simply. Their dictatorial regime paid the transition costs through fiscal austerity deeper than any mainstream American voice would advocate, and by selling off some nationalized industries. These are not practical options for the United States.
Instead, to reform Social Security, we need to keep its source of funding -- the payroll tax -- and modestly reduce the growth in benefits for wealthier individuals, as I proposed in 2005. By contrast, Mr. Cain's plan would dramatically increase the short-term deficit while failing to address the cause of the shortfall.
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| Obama | Romney | |
|---|---|---|
| Electoral Votes (270 to win) |
332 | 206 |
| Obama | Romney | |
|---|---|---|
| Total | 65,899,660 | 60,932,152 |
| Percent | 51.1% | 47.2% |
| Democrats* | Republicans | |
|---|---|---|
| Current Senate | 53 | 47 |
| Seats gained or lost | +2 | -2 |
| New Total | 55 | 45 |
| Democrats | Republicans | |
|---|---|---|
| Seats won | 201 | 234 |
So true, and ignored by Obama and the Dems. I also cannot believe that they refuse to even discuss in public rasing the max to $200,000, which would make it solvent for the 75 year period. So simple, but Obama doesn't even use it as a suggestion for the 'super ones'.
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Interesting how that model worked in Chile. The miners who were trapped underground were told that there would be lifetime pensions awarded. Out of 33 miners trapped only 14 received pensions.
The article said: "The Chilean government chose the miners who will receive the lifetime pensions based on their health, age, and the opinion of the group of survivors, officials said."
http://www.cnn.com/2011/WORLD/americas/08/30/chile.trapped.miners/index.html?hpt=hp_bn2
to do it.
On this same article a troll said that the Chilean model had been implemented by Jose Pinera who is now a Distinguished Senior Fellow at Cato Institute. (Cato was co-founded by Charles Koch, the same guy who bankrolls the tea party.) We can certainly tell where his loyalties lie.
If start cutting the better off it becomes more of a welfare program and more of a target of rightwing demagoguery.
All income should be subject to same income tax rate schedule. Money from wages shouldn't be taxed at a different rate than money you get from other money (CGs and divs.) or money from being born to rich parents or from things like stock options.
A few might find ways to have some income declared something else other than wages but I don't think that would be a big deal. Most upper middle class and low level rich make money from wages working for companies or as professionals working for themselves or as business owners. It might even encourage some business people to plow a little more back into their business in the form of new equipment or people. If it became a big problem, tighten up definition of wages.
Your congressman pays SS tax for about 7 months; the network anchor you get your news from pays for a week or two. How many months of the year do you pay SS tax?
In mid 80's when we last reformed SS the tax applied to 90% of wages; now we're down near 80%.
In the end fair is fair and we shouldn't be afaid that the mean old rich people might find a way to evade their taxes. We just need to be ready to adapt and stop them.
He started with the electrified fence, moved on to trading Guantanamo prisoners and finished with a pro-choice misunderstanding. He also squeezed in a mediocre debate performance. And with all that, his poll numbers are as good as ever. He even won the Nevada straw poll! Here's how he did it: http://bit.ly/pWccZ9
Please don't be so hard-line. One easy fix to Social Security - get rid of the subsidy to the sole breadwinner. (I think this is the "Ponzi Scheme" element Rick Perry identified, and he is Ponzi.) The sole breadwinner gets 150% or more of his/her benefit (100% to him/her and 50% to each nonearning spouse of 10 years or more). Changing this to a shared earning benefit for married couples would remove the heavy taxpayer subsidy and Ponzi Scheme element. 50% would go the breadwinner and 50% to the spouse with no earnings record, for example.
Now Grandma and Grandpa can split their slice of bread and bowl of soup, instead of sharing a bowl and a half and a slice and a half. So much better than having people who make over--what is it?--$106,000?--pay more into the system. Okay to withhold on the entire income of the wage-earner. Just awful to withhold on the entire income of the well-to-do.
The choice to have one spouse not generate an earnings record was theirs - and they are responsible for the consequences of their choice, not the taxpayers or the economy in general. It's poor quality parenting to set up your family that way, anyway, very hard on children psychologically - in addition to how it financially burdens them. It is narcissistic parenting - a type of abuse/neglect.
You can google this, or the much balley-hooed US version from Galveston, TX
IN A NUTSHELL, as anyone with half a brain would expect,
. . . . . . . there are TWO major problems with the Chilean System
1) IT WORKS GREAT ON PAPER, but not in actual practice
2) The primary beneficiaries, are not the consumers, but the Finance Industry
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[ ONE ] ONLY WORKS WELL IN THEORY, The US Social Security System benefits all retired persons for as long as they live, they will never be poor, or outlive their money
THE CHILEAN SYSTEM- In reality, only about 50% of the population is actually eligible for retirement benefits, and most of the time, the level is too low, to keep them off state-sponsored welfare.
Due to a number of complications, it is difficult to get a single overall impression.
AS A COMPARISON, The Galveston TX model is often touted. The analysis is that only high earners come out ahead in that system
===========
[ TWO ] COSTS
"Chile's pension funds, whose number has shrunk to six from more than 20 as competition has diminished, recorded an average annual profitability of more than 50 percent during a recent five-year period.
Other studies, including one conducted by the World Bank, indicate that pension funds retain between a quarter and a third of workers' contributions"
http://www.nytimes.com/2006/01/10/world/americas/10iht-chile.html
Just raise it $1K a year from here on out.
http://www.realclearpolitics.com/video/2011/10/20/capehart_its_all_going_to_crumble_eventually_for_cain.html
They said the family would pay $8,400 currently and that under 999 they would pay 13,600. I don't know how they got the figure for current tax (it is really complex), but the figure given for Cain's plan is totally bogus. This is because the absolute maximum effective rate on personal income if you combine the payroll tax and the sales tax is 17.2%. This is derived by summing the 9% on payroll with the 9% sales tax on what is left. The 17.2% maximum rate could only be reached in the very worst case. The number assumes that the payer has no state and local taxes, saves nothing for a rainy day, makes no 401K pension contributions, has no debt payments, no charity contributions and that they spent every dime on services and unused consumer goods. In any case, even taking the worst case one can easily calculate then the family of the msnbc example pays only $8,600. in taxes. This is a mere 200$ more than what they pay currently. Talk about a pile of total spin and lies.
The celebration of ignorance continues.
No one in a correct frame of mind would adopt the Chilean model (aka neo-liberal / Friedman) brought in under the dictator Pinochet. By every measure of fact, well researched evidence and data, the impact of Friedman / Pinochet policies was an epic disaster for Chile, save the top few ruling elite,IMF and World Bank.
Whether current inflows and outflows of the SS trust are equal has nothing whatsoever to do with the Trust's solvency. To imply otherwise is rooted in ignorance as to the functioning of Pension plans or similar vehicles.
There is no "real" need to reduce benefits. As with any similar Pension plan or like retirement vehicle they must be managed and adjustments made if and when required. The same as SS has done throughout it's history.
""But simply adding these unfunded benefits to the deficit would be dangerous; it would increase the yearly deficit to more than 10% of GDP, which would be worse than the deficit in Greece.""
This makes no sense?
Greece and the US are not analogous in any way. The US has currency sovereignty and Greece does not. That is Greece's main problem at the moment and why they should default, leave the emu and regain their currency sovereignty.
Comparisons are meaningless.