FIT, SIT, and FICA (1 Viewer)

[Keridan]

In discussing on the thread about Romney's tax rate, I found several points I would like to discuss that are not relevant to that topic directly. (http://www.debatepolitics.com/polls...gher-effective-tax-rate-than-mitt-romney.html). I would like to bring them up here and get some input and have a discussion. Particularly, I'm interested in the different types of taxation.

First we have FIT. This is the federal income tax that is used to pay for social programs, national defense, and bureaucracies. This tax is largely progressive. This is true even if you include capital gains. There are a few very rare exceptions, but it mostly balances out. Often the confusion is over marginal and effective tax rates. Most people don't know their effective tax rates. MaggieD was kind enough to link to this calculator to clear it up a bit. It is incredibly rare that someone pays over 15% in effective FIT.

Next we have SIT. This is the tax levied by state governments to fund emergency programs, local social programs, promote business, etc. This tax varies wildly from state to state. You can have a consumption tax (which some argue is regressive), an income tax (argued to be both pro and regressive), property tax or a combination. In NC, I pay a high sales tax and up to 7.5% income tax, but in Alaska, you are paid to be a resident. This is a separate government presiding over incredibly varied economies. Each state has it's own priorities, social programs, business needs, population base and more. I personally argue that you can't average state taxes any more than you can average our federal taxes with those of England, China and Africa to get an informative result. Teamosil did, however, post this link to demonstrate how regressive taxes become when you do average them.

Last, we have FICA. FICA is a flat rate up to 106k and (iirc) does not apply to capital gains. This one is weird because it was designed on the premise that you get back what you pay in. It was not meant (but it does) to fund anything else in government. The idea is mostly that you are being forced by government to pay into a retirement "savings" plan. The reason it is capped and flat is that the thought was that you wouldn't need the services beyond the amounts listed. If you make it more progressive or remove the cap, you end up paying millions to billionaires and such. No one else gets more benefit out of the program if you pay more.

I'm open to any discussion on this topic. Here are my points of question, however:

Should federal be responsible for balancing out state taxes? I really don't think so as that is a huge power grab and not their responsibility. Each state needs to address their own government and taxation.

When discussing progressive taxation, should we include all three? They are very different draws on the paycheck because they all fund entirely different things and SIT and FIT even go to entirely different governments/economies.

Should FICA be progressive and/or remove the cap? Should it be dropped? The former doesn't do anything but lend the government more money to waste, they still owe it back.

 

[tessaesque]

When you say "flat rate" for FICA are you referring to the percentage being flat? Just wanted to clarify on that.

I did calculations one day on the total SS pay-in for various income levels and found that if you make 100k a year or more and retire at the current eligibility age, given current life expectancies, you will not receive all of the money you paid into the system. If you make under 60k you'll receive more than you paid in. Those between 60k and 100k pretty much break even. Keep in mind, this was done using the current monthly allowance numbers and a flat income over 35 years.

Obviously income will tend to vary and payouts will change...but it gives you a (generally) decent idea of how the system currently works. Most of America doesn't pay in enough to cover the payments they're likely to receive, and we don't have enough people paying in more than they'll receive to compensate for the deficit.

 

[cpwill]

Replace current FIT with a tax that is a single rate on all income over 200% of the poverty level and strip out all deductions. This will thus force effective rates to be perfectly progressive, as every dollar you earn in addition will give you a slightly higher tax rate, while still gaining the growth benefits of a flat tax.

shift SS to a private account system as I've outlined elsewhere (10% going to your account, 5.1% going to fund the old system), and remove the cap, chain COLA increases to inflation, and raise the retirement age to 67 over the next 6 years to make up the shortfall. Attach FICA (employee side) to capital gains earnings as well, which will be taxed at the exact same rate as labor-income (corporate tax abolished to remove double taxation). As we move along, we will be able to put an ever larger percentage of FICA taxes into your private accounts and it will be win-win.

Sit back and watch the economy explode, with a resulting surge in federal revenues. do not use it to expand government, but rather to pay down debt.

Goes without saying that getting rid of all deductions includes State Income Tax. The Federal Government has no business subsidizing big state level government.

 

[Keridan]

When you say "flat rate" for FICA are you referring to the percentage being flat? Just wanted to clarify on that.

I did calculations one day on the total SS pay-in for various income levels and found that if you make 100k a year or more and retire at the current eligibility age, given current life expectancies, you will not receive all of the money you paid into the system. If you make under 60k you'll receive more than you paid in. Those between 60k and 100k pretty much break even. Keep in mind, this was done using the current monthly allowance numbers and a flat income over 35 years.

Obviously income will tend to vary and payouts will change...but it gives you a (generally) decent idea of how the system currently works. Most of America doesn't pay in enough to cover the payments they're likely to receive, and we don't have enough people paying in more than they'll receive to compensate for the deficit.

Okay, I wasn't familiar with this, actually. Another area to educate myself. It might change some of my points of reasoning. Do you possibly have a link for some more detailed info? Otherwise, Google and I get along pretty well

 

[Keridan]

Replace current FIT with a tax that is a single rate on all income over 200% of the poverty level and strip out all deductions. This will thus force effective rates to be perfectly progressive, as every dollar you earn in addition will give you a slightly higher tax rate, while still gaining the growth benefits of a flat tax.

shift SS to a private account system as I've outlined elsewhere (10% going to your account, 5.1% going to fund the old system), and remove the cap, chain COLA increases to inflation, and raise the retirement age to 67 over the next 6 years to make up the shortfall. Attach FICA (employee side) to capital gains earnings as well, which will be taxed at the exact same rate as labor-income (corporate tax abolished to remove double taxation). As we move along, we will be able to put an ever larger percentage of FICA taxes into your private accounts and it will be win-win.

Sit back and watch the economy explode, with a resulting surge in federal revenues. do not use it to expand government, but rather to pay down debt.

Goes without saying that getting rid of all deductions includes State Income Tax. The Federal Government has no business subsidizing big state level government.

Then is your end goal to remove FICA in general and have a simple, clearly progressive tax structure that treats capital gains as regular income? If so, I can see the advantages.

 

[cpwill]

remove FICA? no, steer it to privatized accounts; a form of forced savings. If folks want to simply cut it down to 10% rather than funnel the savings over, I wouldn't have a problem with that. other than that though, yes, a transparent simple progressive tax structure that treats capital gains exactly the same as other forms of income. One exception to this being that I probably wouldn't tax payouts from the Social Security Private Accounts.

This will release hundreds of billions annually that we currently spend on tax code compliance/avoidance back into production and investment - a stimulus program that would actually work, would be repeated every year and which we would get for free.

 

[MaggieD]

In discussing on the thread about Romney's tax rate, I found several points I would like to discuss that are not relevant to that topic directly. (http://www.debatepolitics.com/polls...gher-effective-tax-rate-than-mitt-romney.html). I would like to bring them up here and get some input and have a discussion. Particularly, I'm interested in the different types of taxation.

First we have FIT. This is the federal income tax that is used to pay for social programs, national defense, and bureaucracies. This tax is largely progressive. This is true even if you include capital gains. There are a few very rare exceptions, but it mostly balances out. Often the confusion is over marginal and effective tax rates. Most people don't know their effective tax rates. MaggieD was kind enough to link to this calculator to clear it up a bit. It is incredibly rare that someone pays over 15% in effective FIT.

Next we have SIT. This is the tax levied by state governments to fund emergency programs, local social programs, promote business, etc. This tax varies wildly from state to state. You can have a consumption tax (which some argue is regressive), an income tax (argued to be both pro and regressive), property tax or a combination. In NC, I pay a high sales tax and up to 7.5% income tax, but in Alaska, you are paid to be a resident. This is a separate government presiding over incredibly varied economies. Each state has it's own priorities, social programs, business needs, population base and more. I personally argue that you can't average state taxes any more than you can average our federal taxes with those of England, China and Africa to get an informative result. Teamosil did, however, post this link to demonstrate how regressive taxes become when you do average them.

Last, we have FICA. FICA is a flat rate up to 106k and (iirc) does not apply to capital gains. This one is weird because it was designed on the premise that you get back what you pay in. It was not meant (but it does) to fund anything else in government. The idea is mostly that you are being forced by government to pay into a retirement "savings" plan. The reason it is capped and flat is that the thought was that you wouldn't need the services beyond the amounts listed. If you make it more progressive or remove the cap, you end up paying millions to billionaires and such. No one else gets more benefit out of the program if you pay more.

I'm open to any discussion on this topic. Here are my points of question, however:

Should federal be responsible for balancing out state taxes? I really don't think so as that is a huge power grab and not their responsibility. Each state needs to address their own government and taxation.

When discussing progressive taxation, should we include all three? They are very different draws on the paycheck because they all fund entirely different things and SIT and FIT even go to entirely different governments/economies.

Should FICA be progressive and/or remove the cap? Should it be dropped? The former doesn't do anything but lend the government more money to waste, they still owe it back.

I think FICA, while a very important and necessary program, is probably one more example of government failing at what private enterprise does so well: manage money. Look around your big city. See all those skyscrapers? Many of those are owned by insurance companies. They know how to fund insurance and manage annuities. They invest premiums, are required to have sufficient reserves, manage loss extremely well, ferret out fraud. Compare that to the Federal government. They borrow out the money for use in other areas of government, have no reserves, do a horrible job of managing loss and fraud and don't invest a nickel to add to the pot.

Right now wealthier people pay income tax on their Social Security. That, in my mind, is a way of making the tax somewhat progressive. However, that tax they pay on their Social Security? That goes into the general fund. Why? Social Security is rampant with fraud. Attorneys advertise on television to call them and let them help you get on Social Security disability. There are plenty of private disability policies sold in this country. How come attorneys don't advertise to help you get on those? I think we know the answer.

I don't know how to fix it. Sometimes it's better just to start over.

 

[tessaesque]

Okay, I wasn't familiar with this, actually. Another area to educate myself. It might change some of my points of reasoning. Do you possibly have a link for some more detailed info? Otherwise, Google and I get along pretty well

I posted it on the forums somewhere...but it was all my own calculation, honestly. I took a few income levels (60, 80, 100k) and calculated the total employee/employer contribution for SS. Then I found a link that will let you calculate your expected monthly receipt from SS if you retire at the current full eligibility age and compared the contribution amount vs. the payout over the average life expectancy.

Like I said, I assumed a flat income over 35 years. Most people will start out well below 60k and few will actually reach it based on current income numbers, but it would have taken way too long to try to compensate. I figured an assumption of 60k flat over 35 years would give a pretty decent average for the sake of the calculations.

 

[Keridan]

remove FICA? no, steer it to privatized accounts; a form of forced savings.

I could get behind your plan. It's a huge improvement over current procedures!

Sometimes it's better just to start over.

As a libertarian, you know I agreed with most of your post. I'm all about moving to private. Starting over is too big of a shift, however (imo). I would prefer to see a gradual move from a failed system to a better one. I'll be the first to tell government to stop pretending it knows how best to manage and invest my money.

I posted it on the forums somewhere...

I will take a look around, but I like the input you gave here. I am left with a question, though. If the benefits are relatively progressive, does this mean that what I said about removing the cap or making input progressive is wrong? Is there a benefit to the middle/poor class?

Just a note: I edited quotes only to keep this post from being three pages, not to ignore any of the content.

 

[tessaesque]

I could get behind your plan. It's a huge improvement over current procedures!



As a libertarian, you know I agreed with most of your post. I'm all about moving to private. Starting over is too big of a shift, however (imo). I would prefer to see a gradual move from a failed system to a better one. I'll be the first to tell government to stop pretending it knows how best to manage and invest my money.



I will take a look around, but I like the input you gave here. I am left with a question, though. If the benefits are relatively progressive, does this mean that what I said about removing the cap or making input progressive is wrong? Is there a benefit to the middle/poor class?

Just a note: I edited quotes only to keep this post from being three pages, not to ignore any of the content.

Personally, for myself...I don't want somebody else paying for my social security "retirement". If I can't provide for myself through SS (which I don't expect to receive if the system isn't fixed) and my own private retirement savings then it's my own damned fault. What I think needs to happen before we start making reforms is to education the rest of the country on what they can expect. I know my parents both receive SS summaries ever so often and that summary explains how much they can expect to receive each month based on current contributions and projected retirement, but it doesn't tell them that they're going to be pulling from somebody else's contribution pool in the long run.

In any case, I think we need to go a different route all together with retirement. The idea of venerating our elders and taking care of them is beautiful, but in our current state it isn't practical. Because that is the case, we need to make sure there are as many options as possible for adults to prepare themselves for retirement. Personally, I'm find with the 50/50 employer/employee split, but I think they should restructure it so that the employer portion goes to the SS "fund" and the employee part can be invested privately or contributed to the public fund at the choice of the citizen. That is, at least until a better long-term system is put into place.

 

[MaggieD]

As a libertarian, you know I agreed with most of your post. I'm all about moving to private. Starting over is too big of a shift, however (imo). I would prefer to see a gradual move from a failed system to a better one. I'll be the first to tell government to stop pretending it knows how best to manage and invest my money.

That gradual move could easily be that new workers coming on board would enroll in private plans. I mean, surely, SS isn't a pyramid scheme??? Then, for a change, general revenues would have to be used to shore up funding to those currently on SS. One way or another, we're going to bite the bullet.

 

[Keridan]

Going into a meeting, but another nice post, Tess. I will bring it up when I get out.

 

[Keridan]

Personally, for myself...I don't want somebody else paying for my social security "retirement". If I can't provide for myself through SS (which I don't expect to receive if the system isn't fixed) and my own private retirement savings then it's my own damned fault. What I think needs to happen before we start making reforms is to education the rest of the country on what they can expect. I know my parents both receive SS summaries ever so often and that summary explains how much they can expect to receive each month based on current contributions and projected retirement, but it doesn't tell them that they're going to be pulling from somebody else's contribution pool in the long run.

In any case, I think we need to go a different route all together with retirement. The idea of venerating our elders and taking care of them is beautiful, but in our current state it isn't practical. Because that is the case, we need to make sure there are as many options as possible for adults to prepare themselves for retirement. Personally, I'm find with the 50/50 employer/employee split, but I think they should restructure it so that the employer portion goes to the SS "fund" and the employee part can be invested privately or contributed to the public fund at the choice of the citizen. That is, at least until a better long-term system is put into place.

That gradual move could easily be that new workers coming on board would enroll in private plans. I mean, surely, SS isn't a pyramid scheme??? Then, for a change, general revenues would have to be used to shore up funding to those currently on SS. One way or another, we're going to bite the bullet.

It seems like we all agree that SS needs to move to a private fund or at least a shared one. We do have to admit reality that it is a pyramid system, though. We can't just decide to make an abrupt switch.

Government has proven once again with SS that it is a very poor money management system. I support making sure people plan for retirement. There was an incredible rate of retired poor before the program. Minimizing that is a priority.

 

[MoSurveyor]

This post is not concerning SSD or Medicare, since none of you are addressing those systems. This is simply about standard SS at retirement.

Government has proven once again with SS that it is a very poor money management system. I support making sure people plan for retirement. There was an incredible rate of retired poor before the program. Minimizing that is a priority.

They borrow out the money for use in other areas of government, have no reserves, do a horrible job of managing loss and fraud and don't invest a nickel to add to the pot.

This is what makes SS look bad, not the actual system, and many people including my parents screamed bloody murder when Nixon decided it was OK to start issuing Fed IOUs to the SS trust fund.

In fact, the SS has a nice reserve (almost four years) right now.

Yes, the Baby Boomers are going to squeeze it in a decade or two and things will be tight for ~10 years (IIRC). After that it'll be stable again. But if the younger generation wants government to get out of the business afterwards that's up to them and partial private investment in the interim is the best option I've seen - kind of ease in the clutch, so to speak. (The Fed employee retirement system is doing that right now.) I do have one concern if you take that route, though. Who/what protects those funds from the Madoff's of the world? Do you envision a type of FDIC coverage for them or??

Another option, which would be more honest, is to simply use up the SS fund, abolish it, then use the general fund to support it to some fixed date after which private accounts would take over. Since they've borrowed all the money out of it, we may as well just face the music, eh? Far too many people including politicians call SS retirement "entitlement spending" anyway (even though it isn't) so we may as well make reality match the well-used label.


As for fraud and errors in the SS system, that's relatively small. (Again, this is not about disability or Medicare.) The main SS retirement system works very well and could continue to do so as long as the politicians can't get their hands on it! But I'm on the way out. If my children and grandchildren want to do it another way I'm good with that.


I'd also like to hear more about what you would do with SSD and Medicare. Will those be forced-pay systems, too?

 

[Keridan]

This post is not concerning SSD or Medicare, since none of you are addressing those systems. This is simply about standard SS at retirement.

I'd also like to hear more about what you would do with SSD and Medicare. Will those be forced-pay systems, too?

Awesome post! Thank you for contributing.

I would possibly be okay with keeping the program if the government really did keep their hands off of it. I already admitted that there was a severe problem with poor elderly citizens before the program. I do, however, think education would go a long way and I think private firms could do better. The hitch lies in getting people to actually use those firms instead of spending the money. It's kind of a tough one to answer.

The main problem I have with the current system is that it's full of IOUs instead of money right now and that is going to have to be paid back from the general fund. The plan itself isn't horrible, it's the application that makes me want government out of it.

I guess I largely agree with you, but don't have a perfect answer to present.

As for SSD and medicare, we end up in health care and welfare programs. I don't want to delve too deeply for sake of sticking on topic. If we are keeping current healthcare and disability programs, then my answer above applies here as well. If we are revamping the program, I have different feelings. Some intelligent posts in other threads have even pushed me towards seeing UHC as a possible alternative. I'm not there yet, but I'd be open to talking about it in the appropriate places.

 

[imagep]

Replace current FIT with a tax that is a single rate on all income over 200% of the poverty level and strip out all deductions. This will thus force effective rates to be perfectly progressive, as every dollar you earn in addition will give you a slightly higher tax rate, while still gaining the growth benefits of a flat tax.

shift SS to a private account system as I've outlined elsewhere (10% going to your account, 5.1% going to fund the old system), and remove the cap, chain COLA increases to inflation, and raise the retirement age to 67 over the next 6 years to make up the shortfall. Attach FICA (employee side) to capital gains earnings as well, which will be taxed at the exact same rate as labor-income (corporate tax abolished to remove double taxation). As we move along, we will be able to put an ever larger percentage of FICA taxes into your private accounts and it will be win-win.

Sit back and watch the economy explode, with a resulting surge in federal revenues. do not use it to expand government, but rather to pay down debt.

Goes without saying that getting rid of all deductions includes State Income Tax. The Federal Government has no business subsidizing big state level government.

Most people are not aware of this, but the social security benfit age has already been increased to 67. That change was made years ago. Retirement benefits by year of birth

The sensible thing would be to advance the age to get ss benefits until it exceeds our average age of death, and periodicaly increase it by a few weeks every year. At that point, most people would be dead before they drew any money, so we could increase the amount that they draw to a more livable amount, without busting the system.

The privatized part of the plan could then be accessed at maybe age 65 and only have to last until age 77 or so.

So when you say that we would "remove the cap", and that 5.1% would go into the old system I assume that you mean for wealthier americans to have to kick in more than they do now into social security, even though they wouldn't get any more return from the "old system" than they do now (removing the cap from the tax, but not removing the cap from the benefits). I'd be all for something like that.

I think my biggest disagreement is that I am assuming you are assuming that we still offer a discount rate for capital gains. If we flattened income tax, I would insist that capital gains was taxed exactly like every other form of income. I don't believe the gov should pick winners or loosers or subsidize one form of income over the other (and yes, having different tax rates is the effective equivilent of subsidizing).

OK, so it would look something like this:

first $30,000 (per worker, regardless of family size or anything else): 10% required personal retirement account, 5% old age insurance, 0% income tax
Over $30,000: Around 15% income tax, plus 10% required retirement account, 5% old age insurance

 

[cpwill]

Most people are not aware of this, but the social security benfit age has already been increased to 67. That change was made years ago. Retirement benefits by year of birth

I was completely unaware of this. Why was it such a huge deal with Simpson-Bowles proposed continuing that growth so that retirement was 68 by 2050?

The sensible thing would be to advance the age to get ss benefits until it exceeds our average age of death, and periodicaly increase it by a few weeks every year. At that point, most people would be dead before they drew any money, so we could increase the amount that they draw to a more livable amount, without busting the system.

The privatized part of the plan could then be accessed at maybe age 65 and only have to last until age 77 or so.

huh. at which point you would immediately begin drawing? hmm - under this change I would still want to means-test; else you'll have poorer black males subsidizing wealthier asian females.

So when you say that we would "remove the cap", and that 5.1% would go into the old system I assume that you mean for wealthier americans to have to kick in more than they do now into social security, even though they wouldn't get any more return from the "old system" than they do now (removing the cap from the tax, but not removing the cap from the benefits). I'd be all for something like that.

sort of. I ran numbers for the benefit that they now get to keep the 10% of their income in a tax-free growing account: as I recall, you had to make over half a million dollars a year before you actually ended up sending in more than you benefited.

I think my biggest disagreement is that I am assuming you are assuming that we still offer a discount rate for capital gains. If we flattened income tax, I would insist that capital gains was taxed exactly like every other form of income

you will note I said precisely that:

Attach FICA (employee side) to capital gains earnings as well, which will be taxed at the exact same rate as labor-income

and then pointed out that doing so means we have to abolish double taxation on such income as well. tax it at the exact same rate as income, but only tax it once. The only capital gains that I would not tax would be that which stems from the personal retirement accounts.

I don't believe the gov should pick winners or loosers or subsidize one form of income over the other (and yes, having different tax rates is the effective equivilent of subsidizing).

a notable point.

OK, so it would look something like this:

first $30,000 (per worker, regardless of family size or anything else): 10% required personal retirement account, 5% old age insurance, 0% income tax
Over $30,000: Around 15% income tax, plus 10% required retirement account, 5% old age insurance

not really because the cut-off is twice the poverty line. so, for example (thus sayeth Wikipedia) an individual would only see his first $22,322 (in 2009 dollars) as FIT-free, whereas a family of four would see their first $43,512 as FIT-free.


we would probably have to go with a higher rate than 15% to maintain revenues - around 23 perhaps. I wouldn't like to see it go above 20, but I can see how it might have to while we are still supporting the current crop of retirees. As a future point of reference, however, even God only demands 10%, it seems Uncle Sam ought to be able to satisfy himself with twice that.

So, for example, a single person under the age of 65 making 30,000 would see $3,000 go into his personal account, $1,530 go to support SSI, and $7,678 of his income subject to whatever the FIT rate is - if it is 25%, for example, he pays $1,919.50, for an effective tax rate of 6.3%. A family of two parents and two children making 30K would pay no FIT, but would still pay the 3,000 into their private account and $1,530 into SSI.

 

[cpwill]

it's worth noting under that model there is a slight marriage penalty - perhaps the poverty thresholds could be structured to keep it even. Or, to simplify it even more, declare such to be (say) around $11,000 per individual, to increase from there pegged to inflation.

 

[Keridan]

I didn't quote for brevity, but I generally like where you two are going, CP and Imagep.

CP, on the means testing, I have a couple questions. Do you mean that there is a means test when it is time to draw? And how does the poorer AA end up subsidizing the wealthier Asian? Is that in regards to expected life span?

And I'm sorry that I'm too tired to do the math on this, but both of your plans seem to encourage a curve of investment to cover current payables. As in, it would temporarily have to take from the wealthy in greater sums, but that requirement then starts to come down after the newer system takes effect? I don't see the hit crippling them, but I'm trying to understand the application a bit better.

Also, can you tell me where I am missing the marriage penalty?

Sorry if I'm missing the obvious in my haze of fatigue. Getting ready to crash and saw that you had both put thoughtful posts in.

 

[cpwill]

CP, on the means testing, I have a couple questions. Do you mean that there is a means test when it is time to draw? And how does the poorer AA end up subsidizing the wealthier Asian? Is that in regards to expected life span?

basically. Imagep was suggesting that regular SS payments re-start when someone hits the national life expectancy. But black males have the lowest life expectancy and make up a disproportionate number of our low income / poor, whereas asian females have the longest life expectancy and make up a disproportionate number of our upper-middle-class. If everyone were to pay into the regular SSI system for the payouts that he envisions, as a general rule black males would pay in their entire working lives, quickly die, and their money would go to fund asian females who need it less.

So if you are going to re-enact such a thing, you would need to means-test for poverty in old age.

Not that you are likely to see much of that - it's worth noting here that Chile has had such a system for 30 years, with a state-guarantee that if your private account does not give you in returns what you would have received from the old system, the state will cut you a check to make up the difference.

the number of checks Chile has written over the past 30 years for such payouts? Zero.

And I'm sorry that I'm too tired to do the math on this, but both of your plans seem to encourage a curve of investment to cover current payables. As in, it would temporarily have to take from the wealthy in greater sums, but that requirement then starts to come down after the newer system takes effect? I don't see the hit crippling them, but I'm trying to understand the application a bit better.

depends on where you are in the ranks of "the wealthy". As I said, under the new SSI tax structure you have to be making almost half a million dollars before you start net losing, despite the fact that you are paying more in taxes (because 10% of your income is going into an account that grows tax free).

Also, can you tell me where I am missing the marriage penalty?

it comes in at the point of our current poverty thresholds. so, for example, we figured that the effective FIT rate for a single person making 30K above is 6.3%. For a family of four with two adults each making 30K, the effective FIT rate is 6.8%. For two people with 30K incomes who each get married (but don't yet have kids), the effective FIT rate is 12.4%. That's fairly serious - so perhaps a wiser addition would simply be to say that each citizen get's the first 11,000 FIT free.


now that i think about it, the current schedule gives us precisely the opposite of the result that we would want - the tax code should encourage the formation of healthy, permanent, two-parent families.

perhaps 10K for the first person, and then you add another 1,500 for each individual after that. So, two adults would have a FIT free earnings of 21,500, two adults and two kids would have a FIT free earnings of $49,000. That would encourage larger family formation in the higher incomes that can more easily afford it, making society more productive.