From: Richard Arsinow <richard.arsinow@rauland.com>
Subject: RE: Taxing Benefits
>From James>
>>>>You imply that seniors would want to eliminate this 'high marginal rate'. Not true at all, if the solution costs them more money in taxes. If we taxed all SS, then those people with the high marginal rates currently, would not experience such rates, but would pay more in taxes. Since they are mostly retired, we are not talking about the 'work disincentive' we would have for high marginal rates for workers.<<<<
I certainly do not imply that seniors would want to exchange the present oppressively high marginal rate for a tax on 85% of all SS benefits. Seniors want the tax on SS benefits repealed! That is why the paragraph you quoted was followed immediately by the mention of the two bills which would repeal the tax.
>>>>The rationale for 85% was that they figured (at some previous point in the 80's) that 15% of SS benefits, on average, represented actual after tax contributions of workers. The rest came from the untaxed employer's share and the imputed return or interest.<<<<
Are you saying that the assumption was that every dollar of benefits at some point in the 80s was financed by 15 cents from current employer contributions, 35 cents from earnings on employer contributions, 15 cents from current employee contributions and 35 cents from earnings on employee contributions? In other words, the trust fund was paying out 70 cents for every 30 cents it was taking in? At that rate the system would have gone bankrupt long ago.
Or are you saying that, looking strictly on a return of employee contributions basis, that 15% represents a return of lifetime employee contributions and 85% represents employer contributions and earnings which ought to be taxed? This board is full of postings lamenting how the earnings on employee contributions are plummeting as the years go on. By the time many of today's $72,600 earners retire, not in 100 years could they recoup their lifetime employee contributions. 100% of their benefits will be return of lifetime employee contributions, with no earnings or return of employer portion, and it will not be close to being enough to recoup all of their employee contributions. If this were the assumption, certainly the percentage representing return of employee contributions has increased significantly by now and a tax on 85% is surely not justified.
