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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 196714  
Subject: Re: Is Jesus a Democrat? Date: 1/9/2004 12:09 AM
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rbednarski:

<<<<"Partly because the amount you get for retirement is BASED on how much you contribute. Your contributions determine your payout rate at retirement.">>>>

"No, that is not how SS works."

Yes it is.

"The benefit is based on a benefit formula, not on amount of taxes paid."

The benefit formula uses SS taxed income in its calculation, and clearly SS taxes paid are based on SS taxed income, so it seems to be some odd semantic argument to claim that the amount of SS you get in retirment is unrelated to how much you contributed.

"That said, the tax part of SS is extremely regressive but the benefit portion of SS is extremely progressive."

Agreed.

" It is not at all clear whether the overall system is progressive or progressive."

Disagree. As long as their is a maximum amount of earned income that is taxed, it is clearly regressive.

Assume Shaq is erning $5M dollars this year from the Lakers; he will still not pay anymore SS taxes (not the meidcaid portion) than the Sr. VP executive earning $250,000, and both will pay no more than the guy who earns right at the SS taxable limit ($87,700 for 2004, IIRC, but callit 90k to make the math easier for me.

Thus the all pay (direclty and indirectly through employer payment $5,580 (being 6.2% of 90k) x 2 = $11,160
but effective rate varies from

$11,160/90,000 (or 95,580, if you prefer) = 12.4% (11.68%)

$11,160/250,000 (or 255,580) = 4.46% (4.37%)

$11,160/5,000,000 (or 5,005,580) = .22% (.22%)

This is the classic definition of a regressive tax. Note that although each paid the same dollar ammount, the lower of these three people paid at a rate that was 56.36 (53.09) times higher than the highest income in the example.

Regards, JAFO

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