I agree with SSI and SSDI the pit is very, very deep. The incentive to just give up is extraordinary. You have to willingly forgo tens of thousands of dollars for the pleasure of working. Since trying even just a little bit disqualifies you. And yes, SSI/SSDI eats your soul.
But the argument stands even without SSI/SSDI though. Just adding ACA on top of the existing subsidies was enough to almost completely eliminate the incentive to work for practically half of Americans! (median household income: $53,891)
> you can't count payroll taxes as lost income, because they contribute to your future social security benefit.
If only that were literally true!! As usual, a tiny little bit of work each year contributes a lot to your benefits. Everything above that contributes ~1/8th as much. See: http://www.ssa.gov/pubs/EN-05-10070.pdf
I'll summarize: Take your annual earnings each year (up to the FICA max for that year), and adjust for inflation. Take the 35 highest earnings years, and sum them, then divide by 420 (35 * 12). The result is "Step 4". Now look at Step 5:
5a. Multiply the first $816 in Step 4 by 90%. 5b. Multiply the amount in Step 4 over $816 and less than or equal to $4,917 by 32%. 5c. Multiply the amount in Step 4 over $4,917 by 15%. Step 6. Sum the three to find your benefit!
Do you see what they did there?! This is nuts! What does this actually all mean? The net effect?
15.6% * $10k * 35 = $ 54,600 of FICA taxes ==> $ 816/mo in benefits (5.5yrs till breakeven)
15.6% * $120k * 35 = $655,200 of FICA taxes ==> $2,642/mo in benefits (20 yrs till breakeven)
TL;DR - With Social Security, paying 12x the premium nets you at most 3.2x the benefits. The highest payers would need 20 years of benefits just to get their money back, and that's with no ROI / compound interest.
Plug $20,000 (it's a bit more than current-day maximum FICA) per year savings for the next 35 years at even 4% ARR into a calculator... the day you retire you should be looking at $1.35 million dollars in your savings account. At 8% ARR (S&P500) the balance would be $2.8 million.
But they'll pay you inflation-adjusted $2,600 / month. About 1% annually on your 2.8 million. It's. A. Scam. $18,000 / month would be a respectable ROI on that level of investment. In other words, the vast majority of that up to $655k is effectively lost.
I'm not tracking inflation, but since the Wage Base tracks inflation, and payout as well, I can make the point without adding that complexity.
It's like a disease ridden throughout the tax code. The progressive nature is literally everywhere, and it's all designed to apply more and more pressure the more money you make. The problem is, it's all additive, and there are so many layers...
You're right, the proper statement is "you can't count _all_ payroll taxes as lost income." Your numbers still aren't accurate. You're also going higher than the initial income you mentioned ($100k), and you've switched from household income to individual (a two income family with $75k and $45k will look quite differently).
And you can't make the point without disability income. As shown lower down in the thread, your claims are hyperbolic even including DI of $31k!
It's funny..I agree there is a problem here. I just think we need someone intellectually honest to do the numbers properly. And that person is obviously not you.
My point was simply to show the maximum range of possible outcomes, which is why I showed from $10k to $120k. I wasn't trying to tie it back to any particular scenario. Even in the absolute best case, the SSI program is clearly not about providing individual ROI for your tax dollars. It's about your incremental work supporting others. Which is fine... to a point.
The 'retained future income' portion of FICO payments, lets say with a 4% discount rate (ARR), is pennies on the dollar even in the best parts of the income curve where your earnings count the most toward achieving benefits.
Using 'danans' numbers he came up with $35k of marginal utility from $115k of household income. Those numbers were obviously overly conservative, but did include an average SSDI of $24k. There are many, many benefits that danans did not include, which I enumerated in my reply downthread, but I'm willing to settle on $35k of utility from $115k of work as a starting point.
Now showing it without SSI/SSDI and just relying on food stamps, Medicaid, EITC, and other means-tested programs you still get horrible outcomes like the $24k - $30k example from 'chipotle_coyote' but I agree it won't be a straight-out loss up to $100k.
But I hear you -- if I believe enough in making an irrefutable point, I should just code up the site and accept pull requests on Github.
I have always shown my math and quoted my sources, so you might not agree with the methodology, but I've tried to be accurate with the numbers, and cite sources of inaccuracy where-ever possible. I'm sorry you found it dishonest.
I agree with SSI and SSDI the pit is very, very deep. The incentive to just give up is extraordinary. You have to willingly forgo tens of thousands of dollars for the pleasure of working. Since trying even just a little bit disqualifies you. And yes, SSI/SSDI eats your soul.
But the argument stands even without SSI/SSDI though. Just adding ACA on top of the existing subsidies was enough to almost completely eliminate the incentive to work for practically half of Americans! (median household income: $53,891)
> you can't count payroll taxes as lost income, because they contribute to your future social security benefit.
If only that were literally true!! As usual, a tiny little bit of work each year contributes a lot to your benefits. Everything above that contributes ~1/8th as much. See: http://www.ssa.gov/pubs/EN-05-10070.pdf
I'll summarize: Take your annual earnings each year (up to the FICA max for that year), and adjust for inflation. Take the 35 highest earnings years, and sum them, then divide by 420 (35 * 12). The result is "Step 4". Now look at Step 5:
5a. Multiply the first $816 in Step 4 by 90%. 5b. Multiply the amount in Step 4 over $816 and less than or equal to $4,917 by 32%. 5c. Multiply the amount in Step 4 over $4,917 by 15%. Step 6. Sum the three to find your benefit!
Do you see what they did there?! This is nuts! What does this actually all mean? The net effect?
TL;DR - With Social Security, paying 12x the premium nets you at most 3.2x the benefits. The highest payers would need 20 years of benefits just to get their money back, and that's with no ROI / compound interest.Plug $20,000 (it's a bit more than current-day maximum FICA) per year savings for the next 35 years at even 4% ARR into a calculator... the day you retire you should be looking at $1.35 million dollars in your savings account. At 8% ARR (S&P500) the balance would be $2.8 million.
But they'll pay you inflation-adjusted $2,600 / month. About 1% annually on your 2.8 million. It's. A. Scam. $18,000 / month would be a respectable ROI on that level of investment. In other words, the vast majority of that up to $655k is effectively lost.
I'm not tracking inflation, but since the Wage Base tracks inflation, and payout as well, I can make the point without adding that complexity.
It's like a disease ridden throughout the tax code. The progressive nature is literally everywhere, and it's all designed to apply more and more pressure the more money you make. The problem is, it's all additive, and there are so many layers...