Thursday, May 18, 2017

Charles Schwab Pens a Stupid and Ignorant Opinion Piece on SS in the WSJ

But Then Stupid and Ignorant May be Required to Publish in WSJ Op/Ed Section

Charles Schwab has made a lot of money in finance.  One would expect him to know the basic facts of Social Security benefits.  One would be wrong.  Writing in the Wall Street Journal Schwab has these things to say.

Eliminate Social Security and Medicare payroll taxes after age 65 on the first $50,000 of earned income. These Americans have already contributed to the two programs over a lifetime. Yet even after they hit the retirement age, they continue to pay Social Security and Medicare taxes on income they earn.

Well no, not over a lifetime, over their working life which unless they were employed as infants is substantially less.  And for the record 67 not 65 is now the  retirement age.  And yes currently  you pay SS and Medicare on income earned after 65 but guess what.  For most people the SS benefits increase, they get that money and then some back.

Take a 70-year-old woman who earns $25,000 a year in California. Today the combined Social Security and Medicare tax on that income is approximately $1,900. Federal and state taxes further reduce her take-home pay to roughly $21,000. Exempting her from Social Security and Medicare taxes effectively would increase her spending power by more than 9%. She is likely to put that additional $1,900 toward day-to-day living expenses. It’s enough to have a real positive effect on her quality of life.

Uh let’s see.  That 70 year old would have to be in good health to stay working.  And she would be getting SS benefits with no penalty for working.  So she is probably doing ok.  But what she needs is higher benefits after she stops working, which is exactly what happens if she pays SS while she is working. 

This easy tax change would create a big economic boost by leaving money—more than $13 billion, by my estimation—in the pockets of working older Americans,

Of course a lot of that money would go to wealthy people making a lot of money.  While most of us see a distributional flaw there, people like Schwab don’t.  They think tax policy should put money into the pockets of the wealthy.

While lawmakers are looking at it, they should also consider eliminating taxes on Social Security benefits for those who draw them while continuing to work. Today those benefits are subject to tax once someone earns only $25,000. After being taxed for a lifetime to fund Social Security, the program’s benefits are taxed upon receipt. That’s akin to double taxation. Eliminating it is another easy fix worth consideration in the spirit of fairness.

Ah, capping off the piece with a statement of stunning ignorance.  First of all if taxes on SS should be eliminated they should be eliminated after one retires, when one really needs the money.  But remember this, half of the SS benefits are funded by employer contributions which are tax deductible to the employer.  So taxing some SS payments merely restores fairness to the tax code under the principle that is compensation is tax deductible to the issuer it should be taxable to the recipient, leaving government revenues neutral.

And of course for many American SS is totally tax free or mostly tax free because they have income below the threshold that causes it to be taxed.  So all in all, the system work fairly well, and if Mr. Schwab simply took the time to actually understand the program he wouldn’t embarrass himself in print.

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