Hacker News Reader

Comment by rayiner | Hacker News Reader

> If we had sane progressive tax policy in the US, the SS shortfall would evaporate.

Our tax policy is among the most progressive in the developed world: https://www.theatlantic.com/business/archive/2012/02/us-taxe....

The real problem is that the average income earner doesn't pay enough Social Security taxes to cover what they will receive in benefits: http://www.politifact.com/truth-o-meter/article/2013/feb/01/.... The system is set up so not only do the needy get a public subsidy, but most people do.

Caps on retirement taxes are not specific to the U.S. Germany and France, for example, have similar ceilings. Germany, for example, has a 19.6% payroll tax up to $80,000. The U.S. tax is 12.4% up to $127,000.

View on HN

From your linked article:

"Why, according to the OECD, is the US system so progressive? Not because the rich face unusually high average tax rates, but because middle-income US households face unusually low tax rates--an important point which de Rugy mentions and Chait ignores.

How does the picture change if you take indirect taxation into account? That would make the US system look even more progressive, because the US doesn't rely on a flat consumption tax like most other governments.

What does the tax-rate schedule tell you about progressivity? Very little, until you factor in deductions, thresholds and opportunities for avoidance. High top rates are meaningless if nobody is paying them.

What happens to tax progressivity at the very top of the US income distribution--inside the top one percent, or 0.1 or 0.01 percent? Good question. When it comes to international comparisons, I don't know of any good answers..."

The real point of the article is that progresssivity is hard to measure. But when so much of the income growth in the country is captured by a class that doesn't pay into the SS system, the result speaks for itself.

No, the real point of the article is that "according to the OECD, "the US system [is] progressive." The most salient feature of the U.S. tax system is that "middle-income US households face unusually low tax rates"--i.e. the system is highly progressive.

The U.S. tax system is progressive well into the top 1% of income earners (by contrast, Germany, Sweden, and Denmark have a relatively flat tax structure after about 1.5x the median income). There is a lot of focus on tax breaks for the top 0.1%, but 90% of U.S. income is earned by people outside that group, and 80% is earned by folks outside the top 1%.

What about health insurance? USA's privately funded health insurance is equivalent to flat or regressive tax, not a progressive tax.

Half of US health care expenditures come from the government. Medicaid is funded by general tax revenues (based on highly progressive income taxes). Medicare is funded by a flat tax with no income cap.

In Germany by contrast, health care is paid for with a regressive mandatory insurance premium of 15.5% on income up to about $60,000.

Read it all the way to the end. Again, from the article:

"Should the US system be even more progressive than it already is, bearing in mind the skewness of the pre-tax distribution, especially at the very top? Maybe it should--but a steeper tax-band schedule is a dumb way to improve fairness and raise more revenue."

A progressive tax system is progressive in effect, not just in form. The author is saying that people who focus on the tax rate bands are barking up the wrong tree, because the US system already looks like one of the most progressive, even though it may actually not be.

From your quote: "Should the US system be even more progressive than it already is..." The only way to read that is as acknowledging that the system already is progressive. Indeed, according to the title of the article, it is "unusually progressive."

The part about tax-band schedules is not an assertion that the system is not progressive "in effect." (That theory cannot be reconciled with the data presented in the article, which looks at taxes paid, not tax bands.) Instead the author is saying that if we want to make the system "even more progressive than it already is"--which he does not concede we should, he leaves that as a "maybe"--then we should be looking deeper than tax bands. (And he points out that the possibility of loopholes and preferential treatment does not indicate that the U.S. system is not progressive, because other countries do that too.)

Is our tax policy still among the most progressive if you account for the full payroll tax (not just the employee side as apparently that study does) as well as the many other federal, state, and local taxes we pay?

Yes: https://www.washingtonpost.com/news/wonk/wp/2013/04/05/ameri...

Looking at those additional taxes for both U.S. and Europe generally makes the U.S. even more progressive. For example, sales taxes are highly regressive. European countries rely heavily on 20-25% VAT taxes to raise revenue, while U.S. states typically have 5-10% sales taxes. The maximum rates and various caps just generally kick in much earlier. In Germany, the income tax rate is 42% for $63,000+, just a few percent below the maximum bracket of 45%.

Thanks!

> Our tax policy is among the most progressive in the developed world

Not as applies to Social Security, which has a dedicated funding stream independent of general revenue, consisting entirely of a flat tax on labor income below a certain level and no tax above that level which constitutes a two-timer regressive tax on labor income made even more regressive on total income because the high end of the total income distribution consists largely of people whose income comes largely from capital rather than labor income.

A flat tax on labor income, with a cap, is a typical model for Social Security in Europe. E.g. France, Germany, etc. Ours is more progressive because the cap is generally higher.

> A flat tax on labor income, with a cap, is a typical model for Social Security in Europe.

Yes, and the US funding system is similar to that norm, not unusually progressive as claimed upthread.

From your link "...and turning 65 in 2010 would have paid $722,000 into Social Security and Medicare and can be expected to take out $966,000 in benefits."

So basically, employees are giving the government a 45 year loan at zero interest. Even at just a 1.5% rate, the typical employee pays their own way.

That's already accounted for in the "paid-in" figure:

> (Remember, the couple didn’t literally pay out $600,000; that’s the current value of what they paid out over the years, plus an additional 2 percent they may have gotten had it been invested.)

Even accounting for inflation and investment, the average worker still is paid out more from Social Security than they paid in.

> Even accounting for inflation and investment, the average worker still is paid out more from Social Security than they paid in.

The source cited combines “Social Security and Medicare”, it doesn't (at least in the quoted excerpt) address SS separately. These are different programs supported by different Trust Funds funded by different taxes applicable to different income and with different dynamics driving costs.

But the government is not investing that money for the later pay out. They spend it immediately and write IOUs.

Reply on news.ycombinator.com