I would say the striking numbers are the disconnect between
by Raoul (2024-02-07 18:12:17)

In reply to: The striking number is always the same  posted by ufl

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payroll taxes and outlays directly related to those collections (social security and medicare) since the two were supposed to offset each other by design and their divergence (5.9% collections vs 10.1% between SS and medicare in 2034) was well known and understood even back in 1973 (when the Baby Bust was literally bottoming). It was never an insurance program, at least in the actuarial sense. And it wasn't even a well-designed Ponzi scheme (that is, SS and Medicare). Oh well. We have discussed this many times in 20 years to no avail.

The good news is that in 2034 the Baby Boom issue is crowning. The oldest Boomers will be 88, the peak Boomers will be 77-79 and the youngest will be 70, while the Baby Busters will be getting into their retirement while the Echo Boom approaches peak earnings. But the next 10 years are a very ugly picture for which there is little hope.

Another bit of good news: Inflation has raised the 6.2% FICA rate cap to $168,200 in 2024. Remember when people wanted to uncap FICA but politicians worried about protecting suburban educated voters by wanting to put in a donut at $100K to $250K and then restart at $250K at the 6.2%. Well, we are not so far from $250K now on the max, and so close that uncapping with no donut (are you really going to protect say $175K to $250K or $300K with a donut) seems inevitable. Uncapping on the FICA max will be a the first step.

What else might happen? I suspect we will see capping balances on Traditional and Roth IRAs at some high number (say $2.5M single and $5M married) with RMD's to get down to those amounts if balances exceed in any year or average of 3 tears. And there will be some kind of benefits means testing - first in SS and then with Medicare.

Ultimately, Medicare will have to decide what it can and cannot afford to cover. And if you want something that is "nice to have" you will pay for it yourself.

Of course these adjustments may not happen, and then the budget deficits will continue to be close to double the historical amounts as a share of GDP. Will there be the political will to address this? It will be interesting...since Trump co-opted the "throw grandma off the cliff" objection from Dems and has promised to never touch SS or Medicare. I am guess Biden won't touch it either.




Not many folks are talking about this (Nicki Haley, I guess)
by ufl  (2024-02-07 18:16:45)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

My suspicion is that this will simply end with a cancellation of the earmark, but we'll have to see.
We'll just have to settle for wealth taxes
by Raoul  (2024-02-07 18:38:54)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

Though we may need those just to afford raising the SALT deduction back up. Those are the two tax issues you hear about from Dems.

VAT is the only real option.
by EricCartman  (2024-02-08 09:05:18)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

Pelosi floated the idea back in 2009. Obviously it didn't go anywhere. That said the VAT is how Europe pays for their social spending.

Since cutting spending is not on the table, I'm okay with a VAT. Our debt is exploding, and if more revenue is the only answer then so be it. The fiscal conservatives had their chance, and they never seized the moment. Now we are left with only bad solutions to what was a solvable problem.
We have room to squeeze spending on the medical front
by AquinasDomer  (2024-02-08 10:05:19)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

European style negotiations on drug spending, changing the rules to reduce administrative spending, etc.

When push comes to shove I bet we'll push the retirement age back, reduce/take away 401k tax advantage age going forward, and raise income taxes. But the issues with the debt will have to get far worse to push those changes.
Can you please expand on your 401-k thoughts?
by jt  (2024-02-08 14:06:09)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

I'm not sure exactly what you mean.

It amounts to a tax break
by AquinasDomer  (2024-02-08 14:39:54)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

That mostly goes to high income earners. There's just under 200 billion in revenue lost from it. If you got to a position where you were cutting social security I could see tightening eligibility rules around them as part of a compromise.

Ultimately we need the average person to work longer or consume less before/after retirement. If it took longer to build a jest egg people would retire later and work longer.
so you're saying that they'll take away the 401-k option
by jt  (2024-02-08 18:01:35)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

entirely?

I don't believe that will happen. What would they replace it with?

Or are you saying that they will make it post tax and not pre tax dollars? I could sort of buy that, but I still doubt that will happen. There is a post tax option currently (Roth) and that's an even worse long term deal for tax revenues.

The main reason for these plans is to encourage people to save for their own retirement and not depend on pension plans (which are largely gone) or social security.
The analysis
by AquinasDomer  (2024-02-08 18:30:14)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

Suggests it hasn't changed savings rates and effectively reduces taxes on the money you save and then used in retirement. Even the tax deferred stuff (based on how the employer match is taxed and that retirement income is generally lower).


They cite a Danish study showing that changing the subsidy for retirement contributions for the top bracket didn't move saving very much.

"The results of this study have been well received and broadly accepted. The weight of the evidence indicates that tax incentives do not increase total saving in a meaningful way."

Per the article, the treasury estimates it loses about 120 billion by allowing defined contribution plans, ignoring Roths (see Table 1)


It's not enough to balance even social security by itself, but if you get into a crisis where we need to right size the budget fast and social security is being cut I could see it. Touching anything that really drives the budget under current political conditions is politically toxic outside of the health system. There might be 100 billion or so a year you could get at outside of an emergency (some drug pricing stuff and maybe minor tweaks in billing). You could maybe get 100 billion in tax increases outside of an emergency. And maybe 100 billion in discretionary spending cuts. But that probably just pushes off reforming entitlements a bit longer.



Taking away 401k contributions entirely is a bold move
by jt  (2024-02-08 22:37:14)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

Now, making them after tax? Possibly. But the roth is a worse long term solution.

After tax, Tax deferred, tax on growth? Maybe

Their more realistic solution
by AquinasDomer  (2024-02-09 00:42:54)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

Was setting an upper cap where you can't add more (once you hit 500k or a million) or taking away catch up contributions over an income of 100k or so. Some of their proposed compromises still get you 100 billion a year so that's something.

It'd only be viable if cuts to something else near and dear to America's heart were up for grabs.
Traditional 401ks are tax deferred.
by EricCartman  (2024-02-08 15:12:10)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply

Roth IRA let you pay your taxes now in exchange for never paying taxes again.

This is just a timing issue, and potentially a tax arbitrage issue if you think that rates will be higher/ lower in the future.

This is also a play on capital gains rates, since distributions from a traditional IRA are taxed as ordinary income, principal and all. If you take the tax hit on the front-end, then invest and pay capital gains at the end, you could come out ahead depending on where rates are.

With respect to health care, I don't know how we solve our current system. Government spending is subsidized by private insurance, so if we consolidate everything under a government plan, spending will not go down. Somethings will work on the margin, but we need to burn down the system and replace it with someone sustainable from a fiscal perspective.

Wealth tax has serious problems. *
by ufl  (2024-02-07 19:17:17)     cannot delete  |  Edit  |  Return to Board  |  Ignore Poster   |   Highlight Poster  |   Cannot reply