Social Security Almost Out of Money,<br> Medicare Already Broke:<br> Will Tax Increases Be Next?
The 2009 Social Security and Medicare Trustees Report was released today, and the message (as usual) is not good.
Here are some quick highlights:
When do these entitlements start paying out more than they bring in? In the case of Social Security, 2016 (only seven years from now). In the case of Medicare, we're already there. Medicare is losing money by the armful.
What happens when the programs start running a deficit? At that point, general fund taxes will start paying for a bigger and bigger share of the benefits. On Medicare, it's already there.
How big is Social Security and Medicare? Social Security is currently 4.4% of GDP, and will hit 6.2% of GDP in 2034. Medicare is currently 3.2% of GDP and will hit 11.4% in 2083. By the end of the window, these two programs alone should equal or exceed total federal spending in a typical year today. That's before counting interest on the national debt, and all of the other functions of government.
How much might taxes go up to "pay for" these programs? According to the report, the Social Security tax would have to rise from 12.4% today to 14.4% permanently. The Medicare payroll tax rate would have to rise from 2.9% today to 6.78% permanently.
That would raise the FICA tax rate from 15.3% today to 21.2% going forward. This rate of tax would be especially harsh on the self-employed, who have to pay both halves of FICA themselves.
What about benefit cuts? Sure, Congress might cut benefits, but that's a stretch. Social Security would return to balance with a 16 percent cut in benefits today. Medicare would be balanced with a whopping 53 percent cut in benefits
Congress might also opt for a lethal combination of tax increases and benefit cuts. The most likely short-term outcome is to float more debt, but that only postpones the decision on how to finance the shortfall.
So are we stuck? That's the good news. The answer is "no." If Congress allowed younger workers the choice to save their Social Security and Medicare taxes in a personal account they own and control, these programs would be pre-funded (as opposed to the current underfunded "pay as you go" tax and spend mechanism). The prefunding would be good forever, benefits would almost certainly be higher, and the programs themselves would not be in such dire straights.
Pro-younger worker solutions like pre-funded personal savings accounts are a far better solution (for the workers and the economy) than tax increases, benefit cuts, or more debt.
More from Americans for Tax Reform
Obama Releases Tax Increase Playbook
President Obama yesterday released details of his plan to raise taxes on American families and small businesses. He has been telegraphing this plan ever since the 2008 Democrat primary. At each step, American families and small businesses have received a fresh warning. With the release of the Treasury Department’s document this week, the tax hikes have begun to be fleshed out.
40% of the value of new “tax cuts for families” is actually new spending, not new tax cuts. A close examination of the Obama tax blueprint shows that of the $736 billion in new “tax cuts” for working families, some $280 billion—or 40% of the value—is in fact welfare spending on non-taxpayers.
In total, the Obama “tax cut” blueprint hikes spending by $410 billion, and falsely labels this new spending as “tax relief.”
Families making less than $250,000 per year will see an income tax hike. Families with taxable income of $230,000 and individuals with taxable income of $190,000 will see their income tax rate rise. This flies in the face of Obama campaign promises not to raise taxes on any families making less than $250,000 per year.
American families will bear the brunt of the Obama tax blueprint’s energy tax hike. By limiting tax breaks for the production of domestic energy and a raft of other energy tax hikes, the Obama budget blueprint will raise American families’ energy bills by $105 billion over the next decade. This does not even count the new carbon tax known as “cap and trade,” which is not included in this budget outline. All told, the Obama energy agenda will raise the average family’s energy bill by thousands per year if fully-implemented.
Small businesses will shed jobs to pay for the higher small business tax rates. The Obama budget blueprint calls for the top tax rate to climb from 35% to 39.6%, and for the second-highest rate to climb from 33% to 36%. In addition, restoring the phaseout of itemized deductions and personal exemptions will bring the top rate mathematically closer to 41.6%. Social Security and Medicare taxes come on top of this.
These tax rate hikes would be devastating for small businesses, which pay taxes on their owners’ tax forms. $2 out of $3 in small business profits pay taxes at these tax rates. 47 million Americans—one out of three American workers—is employed by these profitable small businesses. In order to pay the higher taxes in the Obama tax blueprint, workers will be among the first to suffer.
More from Americans for Tax Reform
Obama Releases Fraudulent Budget Document with Tax Hikes
President Obama today released another piece of his budget, supposedly consisting entirely of "spending cuts"
Unfortunately, he's playing fast and loose with the facts. There are 9 "spending cuts" in his budget which are energy tax increases on American families
- These tax increases total $26.4 billion over the next decade. These are not spending cuts. These are tax increases. These will increase tax revenues flowing to the government, which will use these higher taxes to make the budget bigger, not smaller. Tax increases are not spending cuts
- Any freshman year poli-sci major knows the difference between a spending cut and a tax hike. We should expect more from a constitutional law professor who also happens to be the President of the United States
- You can read about all of President Obama's energy tax hikes by clicking here. Americans for Tax Reform has released a series of one-pagers detailing all of the tax hikes on American families' energy bills in the Obama budget
- These tax hikes are just the tip of the iceberg. To read more about all the tax hikes in the Obama budget, click here
Corporations Don't Pay Taxes--<br>People Do!
Today, President Barack Obama unveiled a plan to further subject U.S. companies to double-taxation on their international profits. This will kill thousands of jobs back here at home.
It raises the question, “who pays the corporate income tax?” The answer is, “we do.” Corporations don’t pay taxes—people do. Corporations are legal entities which collect taxes from real live human beings. Here’s how:
Wage Earners. If you earn a wage, chances are you pay the corporate income tax. You do so because your wages are thousands of dollars lower than they would be in the absence of the corporate income tax. According to the Census Bureau, 77 million Americans work for companies which employ 100 or more people. That’s more than 6 out of every 10 Americans with a job. Most of these people work for corporations, who have to pay them a salary with money the government doesn’t take with the corporate income tax.
There’s an emerging consensus among economists that at least $0.60 out of every $1.00 the corporate income tax collects is paid in the form of lower wages (the other $0.40 is paid in the form of lower returns for shareholders, which we will get to in a moment). So if your paycheck isn’t as high as you would like it to be, blame the corporate income tax.
American Families. Corporations make money by selling things to people. If a corporation makes a profit of $1.00, and $0.40 of that must go to corporate income taxes, that “tax wedge” will be built into the price.
Let’s say a corporation wants to make $600 on a computer after taxes. It has to charge you $1000 for that computer, knowing it will have to pay $400 in taxes. You just paid the corporate income tax on that computer. All the corporation did was pass along the cost to you in the form of a more expensive computer. Families pay the corporate income tax.
Seniors and 401(k) Owners. It goes without saying that seniors and shareholders can also be wage earners and consumers, but they also have their own contribution to paying the corporate income tax. We mentioned above how $0.60 on the dollar in corporate taxes comes out in the wash in the form of lower wages. The other $0.40 shows up in the form of lower returns on investment.
Corporations are owned by the millions of 401(k) owners, IRA owners, pension plans, and individual shareholders who buy and hold corporate stock. A majority of adults in the United States are part of this “shareholder majority.”
When corporations have an after-tax profit, they can do one of two things with it: they can return the profit directly to shareholders (a “dividend”). Or, they can retain the after-tax profit in the company, re-investing it to grow the business. When the business grows, the share price rises, and the investor gets to benefit later when he sells the shares (a “capital gain”). Either way, after-tax profits eventually make it back to the investor.
“After-tax” is the key term here. The corporate income tax results in after-tax profits being far lower than the pre-tax profits looked. Corporations also might engage in less-profitable activities in order to avoid paying the corporate income tax.
At the end of the day, $0.40 out of every dollar collected by the corporate income tax ends up making your 401(k) smaller.
More from Americans for Tax Reform
robert, if we have to explain to WZ, econ 101, it may be a waste of time. some people talk to hear themsleves.
WZ you are no WIZ, every $ that comes out of profits can not be used to pay stock holders or employees salaries, or bonus' or employees salaries or benefits. If you think cost of doing business has zero to do with the price of products or profits, or tht taxes are not a cost of business, you are sadly misguided and extremely ill informed. If supply and demand create a situation that the corporation can not make an adequete profit, operative word adequate, they have to react, cut something, if not they cut everything!!!!! Meaning all emplyees and all stockholders lose! The supply then is reduced at least temproarily so their competitors in turn can raise prices, of they choose without competion, or with less compeition. Supply and demand effects costs only to the deree profits are made, but no one but a fool thinks companies will lower prices without making a profit that is adequate. Profits are always the bottom line in a coporation and liberals think profits are evil, but without profits we have no investments and no jobs and no income and then no taxes paid. You must believe in to each according to need from each according to ability, or that business is a charity, Both are wrong.
Obama's Proposal to Double-Tax Profits<br> Will Be an American Jobs Killer
America has the highest corporate income tax rate in the developed world. The United States is tied with Japan for one very dubious honor—having the highest corporate income tax rate in the developed world. According to the OECD, the United States has a combined marginal corporate rate of nearly 40 percent. This compares very negatively to our European competitors’ average rate of 25 percent. The Republic of Ireland stands in the starkest contrast, with a corporate income tax rate of 12.5 percent. In the developing world, rates of 10 or 15 percent are commonplace.
America is the one of the only developed countries that double-taxes the international profits of our own companies. If a Polish company earns a profit in France, it pays the French corporate income tax, and nothing else. But if a U.S. company earns that same profit in France, it must pay the French corporate tax and the U.S. corporate tax (minus whatever was paid to France). So not only does the U.S. impose the highest corporate rate in the world, it makes sure that this rate is applied to both domestic and international profits. This is called a “worldwide taxation system,” and the U.S. is one of a tiny handful of countries that still practices it.
Recognizing the problem this creates, Congress has crafted a confusing set of exclusions, deferrals, deductions, and credits on international profits. In general, U.S. companies can avoid paying this double-tax until they repatriate the profits back to the U.S.
By seeking to take away these double-tax band-aids without lowering the corporate rate substantially or fixing the global taxation scheme, Obama’s proposal will shove jobs and capital out of America and into foreign countries. Obama’s budget and Congressional tax-writers have been clear—they want companies to pay the full corporate rate as soon as the international profit is earned. In a global economy, companies don’t have to take this lying down. It’s a relatively-simple matter for a U.S. company with an Irish subsidiary to become an Irish company with a U.S. subsidiary. The Obama plan will force thousands of companies to make this job-killing decision. Companies that export goods will soon start exporting jobs.
The U.S. should tax our companies the way the rest of the world taxes theirs--territoriality. The rest of the developed world has figured this out: if they want to retain jobs and capital in their countries, they have to adopt territoriality. This means that companies only pay corporate income tax in the country where the profit is earned. The U.S. partially tried this in 2005, when companies were allowed to repatriate deferred foreign earnings at a 5.25% rate—far lower than what they would have to pay otherwise. The result was a one-year infusion of $318 billion in capital to the United States, resulting in $17 billion in additional corporate income tax payments, and the creation of thousands of new jobs.
The U.S. needs to lower our corporate income tax rate to become more competitive. American employers are competing globally with Irish, British, German, etc. companies. It makes no sense to saddle our employers with the highest corporate rate in the world. At the very least, we need to lower our corporate tax rate to 25 percent or less. This simply begins to make our tax treatment of large employers somewhat comparable to our European competitors. When combined with territoriality, this move would begin to change the corporate tax culture in the U.S. from a jobs killer to a jobs magnet.
More from Americans for Tax Reform
ATR Praises Cong. Hensarling<br> for Leadership in Credit Card Bill
Below is the text of a letter ATR President Grover Norquist today sent to Congressman Jeb Hensarling (R-TX) on the issue of credit card restrictions under consideration by Congress:
I write today to commend you for your leadership on H.R. 627, a bill which seeks to impose Washington, DC-based “solutions” on America’s credit card holders. As you know, the real answer to any problems within credit card markets is not more regulation and laws, but allowing consumers to make informed decisions with their own money.
During a time of economic crisis in financial markets, the last thing that Congress should be looking to do is restrict credit. Credit card companies operate in an atmosphere of stiff competition, and as such are constantly refining their products to attract consumers. If Congress imposes new restrictions on credit cards, the result will be higher cost and less availability. This would be particularly-harmful for America’s small business sector, which relies on credit cards to finance many day-to-day operations.
This power-grab by Congress also takes away the considered and stakeholder-inputted regulations that have been issued on this matter by the Federal Reserve. The Federal Reserve needs to have the leeway to act as the facts on the ground dictate, and Congress’ lawmaking action here restricts flexibility and will lead to unintended consequences.
By the Numbers:<br> Obama's First 100 Days and Taxpayers
This Wednesday will mark President Barack Obama’s first 100 days in office. In honor of this event, Americans for Tax Reform has put together the most important numbers taxpayers need to keep in mind when evaluating President Obama’s performance:
|16||Number of days it took Obama to break his campaign promise to not raise taxes on any family earning less than $250,000 per year (by signing a tobacco tax hike which affects people making $36,000 on average)|
|40%||Tax rate Obama would like to take small business profit taxes to|
|2/3rds||The percentage of small business profits that will pay this tax rate|
|43 million||Number of Americans working in small businesses (<100 employees)
|36%||Percentage of Americans working in small businesses (43 million)|
|$10,000||Amount of higher energy taxes American families will have to pay every year if the Obama-Pelosi-Reid budget is enacted (including cap and tax)|
|$3100||The average family’s annual share of the “cap and tax” scheme
|60%||The percentage of all income taxes currently being paid by the top 5% of families (must earn over $150,000 to be in top five percent)|
|3%||The percentage of all income taxes currently being paid by the lower half of families (must earn less than $31,000 to be in lower half)|
|33%||The percentage of families filing a tax return that had zero or less in income taxes paid (making it mathematically impossible to cut taxes for “95 percent of working families”)|
|0||Number of developed countries that have a higher corporate income tax rate than the United States (we’re tied with Japan at 40%)|
|25%||The average European corporate income tax rate|
|578,000||Number of Americans attending Tax Day Tea Parties (and counting)|
|540||Number of Tax Day Tea Parties (and counting)|
ATR Will Rate a Vote on the<br> Budget Resolution Conference Report<br> In Both the House and Senate
Americans for Tax Reform WILL RATE the conference report on the FY2010 budget in both chambers.
The conference report on the budget taxes too much and spends too much. It lays the groundwork for permanently higher levels of taxes and spending which will cripple job creation and destroy family nest eggs.
On taxes, this budget resolution calls for a permanently higher rate of tax on two-thirds of small business profits. It calls for raising the tax rate on businesses that employ at least one in three Americans. By raising the top small business tax rate from 35 percent to 39.6 percent (and over that when mathematical effects of phase-outs are included), small business takes it on the chin in this budget resolution.
American families will pay higher energy bills as a result of this budget. If all the tax increases outlined in the Obama budget are implemented by Congress, the average American family will pay $10,000 per year in higher energy taxes—30 percent of which come from the deadly “cap and tax” scheme which Congressman John Dingell (D-MI) has called “a tax, and a big one.”
The budget resolution conference report paves the way for permanent new taxes to pay for government-controlled and run health care. Reconciliation is used to shoehorn a total takeover of the health care sector by the government.
All told, the Pelosi-Reid-Obama budget envisions a world where the federal government spends 25 percent of economic output (historically, it’s been closer to 20 percent). Taxes will have to catch up, sooner rather than later. Taxes must rise from their historical level of 18.5 percent of GDP. What’s not seen in this budget is all these higher taxes—on energy, on small businesses, on internationally-competitive American employers, and on shareholders.
AMERICANS FOR TAX REFORM WILL RATE A VOTE AGAINST THE BUDGET RESOLUTION
CONFERENCE REPORT IN BOTH THE HOUSE AND SENATE
Individual Health Mandate With<br> An Income Tax Surtax<br> Is A Pledge Violation
Americans for Tax Reform today released the following advisory to Congress:
- 172 Members of Congress and 34 Senators have signed the Taxpayer Protection Pledge to their constituents and the American people. It obliges them to oppose any and all net income tax increases
- Many of these same elected officials have been seeking to craft a Congressional Republican alternative on health care. One of the ideas that has been reported is to require Americans to purchase health insurance (an “individual mandate”). By itself, this proposal is dubious from a liberty perspective, but irrelevant from a tax perspective. It’s a regulatory cost of government, but not a tax
- Any penalty/fine imposed by the government is a tax—an involuntary payment to the government. This penalty/fine/tax has morphed in recent years to take the form of a surtax on Americans in order to finance this individual mandate. Americans would pay the surtax on their 1040s, and have the money available to purchase a health insurance plan offered in a government-sponsored “exchange” or “connector,” much like the Massachusetts model.
- Because this surtax is a net income tax hike (as evidenced by scores for Senator Wyden’s “Healthy Americans Act”), support for this proposal is inconsistent with the Taxpayer Protection Pledge and a clear Pledge violation. It should be vigorously-opposed by Pledge signers.
An individual health insurance mandate is bad public policy for several reasons:
- Conservatives should never be forcing Americans to purchase an over-priced, over-regulated product under threat of a tax hike
- According to the Urban Institute, only 3 percent of all health care spending goes toward uncompensated/uninsured health care—the “free rider” problem is therefore overstated by individual mandate supporters
- If Congress requires a mandate, they also must define what constitutes “insurance.” This will result in disease groups and others lobbying Congress to mandate that their health care spending be made mandatory
- Forcing Americans to purchase health insurance doesn’t do anything to lower the cost of insurance. Indeed, with Congress defining what “insurance” is after being lobbied by Washington, DC interest groups, health insurance will very likely get more expensive, not less
- As a result of this higher cost of insurance, Congress will feel pressured to enact more top-down, Washington-focused “solutions” like price controls (already seen in Mass.) and “community rating” (forcing a 25 year old jogger to pay the same premium as a 58 year old chain smoker)
- Republicans have plenty of ideas on how to lower the cost of health insurance, which is the real issue here (e.g. small business health plans, health tax credits, HSAs, interstate purchase of insurance, etc.