earned income (Schedule C Income)

[Tom Poje]

oh joy of joys

guess I will wait for someone to build this into the spreadsheet if this goes through for 2018!

https://www.ssa.gov/OACT/solvency/TCotton_20170601a.pdf

 

Thank you for your letter of April 12 regarding the implications for Social Security of reducing the employee portion of the payroll tax. The proposal would cut the payroll tax rate by 2 percentage points on Social Security-covered earnings up to:

· $28,258 for workers filing an individual income tax return,

· $56,512 for a married couple filing a joint return, and

· $28,258 for a married worker filing a separate return.

The proposal would reduce the employee portion of the payroll tax rate from 6.2 to 4.2 percent on annual earnings below the applicable threshold; the employer portion would remain at 6.2 percent. The tax rate for self-employed workers would be reduced from 12.4 to 10.4 percent on annual earnings below the applicable threshold. The dollar levels indicated above would apply for tax year 2018, with the thresholds increased by price inflation after 2018; that is, by the annual COLA increase percentage determined for December of the prior calendar year.

As we have discussed with your staff, this tax rate reduction would be implemented by way of a credit associated with the workers’ income tax filings. The reductions could not be efficiently applied in payroll withholding for at least two reasons. First, the employer would not know for certain the tax filing status the worker will use for the year. Second, for individual workers or married couples with more than one job during the year, it would not be clear to which job’s earnings the reduced payroll tax rate should be applied. As a result, the reduction in payroll tax would be received in the form of a credit included in workers’ federal income tax returns for the

year.

[spiritrider]

It is hard to get excited about the SS actuarial results to a hairbrained idea from a Senator. Wake me up when this actually gets recommended out of committee. That is if it has or will ever be filed as legislation.

SS may not be progressively taxed, but the Primary Insurance Amount (PIA) calculation used for determining benefits is massively progressive.

Not to mention this is going the wrong way for an insolvent system. Now if the dolt was asking what the long term projection of the trust fund with some or all of the following, that would be reason to be hopeful.. Raising the retirement age to 70 for those <= age 40. Raising/Eliminating the SS maximum wage base and/or raising FICA taxes. 

[david rigby]

As far as I can tell, this "proposal" relates only to the tax, not the SS benefit calculation.

[My 2 cents]

Still, isn't lowering the employee tax likely to exacerbate the system's funded status problems, especially if not accompanied by any reductions in benefits?  I think that was Spiritrider's point.

It's hard to solve problems like those of the Social Security System if one rejects, out of hand, any sort of increases in the tax revenues to be collected.

[RatherBeGolfing]

1 hour ago, My 2 cents said:

Still, isn't lowering the employee tax likely to exacerbate the system's funded status problems, especially if not accompanied by any reductions in benefits?  I think that was Spiritrider's point.

It's hard to solve problems like those of the Social Security System if one rejects, out of hand, any sort of increases in the tax revenues to be collected.

I have had a hard time finding a good explanation that isn't tainted by opinion (both left and right), but from a policy standpoint it looks similar to Obamas payroll tax cuts (2011-2012?) that cut 2% from the employee side with the goal of putting more money in peoples pockets to spend and help the economy.  

As I recall, the 2% cut under Obama was up to the TWB rather than the 28K that is referenced here, and it was offset somehow so that SS got the 2% from somewhere else in order to not make matters worse.  I would assume there is a similar provision built in to this proposal as well.

[Tom Poje]

I dug back through my old files, blew off the dust and stuff, and found my sheet that adjusted things. I only adjusted the TWB on this version. (In this example it made a whopping difference of a little less than $2 in FICA (but that is using full TWB). (calculation in blue) as I recall, certain people on this board said they didn't even bother changing their spreadsheet, saying it wasn't worth it.

ideal salary adjusted.xls

[Belgarath]

I had erased that episode from my memory banks, mercifully. At this point, my memory banks erase automatically.

[imchipbrown]

I'd rather see an adjustment where you are taxed on (income - SS/Med taxes).  Right now, you are taxed on the ss/med tax.  So, Box 1 would be (Gross - 401k - ss/med).