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To: Dan3 who wrote (158663)	10/22/2008 11:51:14 AM
From: GraceZ	Read Replies (1) \| Respond to of 306849

If the Federal Budget were kept balanced, and FICA taxes were off budget, it would mean something, but the reality is that it all goes into the same pot. The non-unified Federal budget (excluding SS) is around 2 trillion, FICA covers SS/Medicare first with only the surplus going towards that government burden. The history of Social Security is that it has been on and off budget. It started out off, was moved on when Johnson wanted to balance his budgets and then moved off again after the Greenspan commission. Usually for deficit projections the surplus (which is now getting smaller as a percentage because benefits are rising) is included because the "unified budget" is a more accurate estimate of how much debt needs to be raised from the public sales of bonds, but they always put out a budget that excludes off budget items like SS so one can easily factor the surplus. You can’t run the government with that surplus, it is too small and getting smaller. The annual report for SSA makes some pretty interesting reading for those curious where their FICA taxes go. As recommended by the Greenspan commission back in 1983, Social Security has been "off budget" since 1993. The surpluses are exchanged for special non-marketable Treasury securities held within the trust funds along with some marketable securities. As I’m sure you know, there is a strong political resistance to holding anything but Treasuries in those trust funds: ssa.gov b>"Off-Budget" Again-< In the 1983 Social Security Amendments a provision was included mandating that Social Security be taken "off-budget" starting in FY 1993. This was a recommendation from the National Commission on Social Security Reform (aka the Greenspan Commission). The Commission's report argued: "The National Commission believes that changes in the Social Security program should be made only for programmatic reasons, and not for purposes of balancing the budget. Those who support the removal of the operations of the trust funds from the budget believe that this policy of making changes only for programmatic reasons would be more likely to be carried out if the Social Security program were not in the unified budget." (Note that this was a majority recommendation of the Commission, not the unanimous view of all members.) This change was in fact enacted into statute in the Social Security Amendments of 1983, signed into law by President Reagan on April 20, 1983. That said, due to promises already made, the issue of FICA as a percentage of total government receipts can only get much worse than the historical 36-37% of revs. If Social Security and Medicare payouts grow at the actuarial projections and continue to be funded only with FICA, then FICA will grow larger than the GDP, not just larger than the rest of the Federal budget. Obviously that can't happen, it is a mathematical impossibility. You can't have tax receipts higher than the national income so the only way out, if you want to hold benefits constant, is to destroy the value of future benefits with inflation. In the near term, raising the limits to include all wage income will break the formula that was set up many years ago which set a mathematical ratio between maximum income subject to it and median income. It will also further erode the formula for premiums paid in determining benefits paid out. The program will no longer be a wage/disability insurance program but a wealth transfer scheme. But, the real hairiness of trying to "fix" SS/Medicare by raising premiums has to do with one very difficult to pin down loophole, the use of corporate entities to avoid FICA. I can tell you that all my strongly Democratic clients are very much in favor of raising the limits on FICA to include all wage income. I see this as a totally hypocritical position because they can only blithely support such a change because ALL of them employ FICA avoidance schemes even though their net incomes only start to approach the upper limit, with few going over it. They can do this by organizing their businesses as S, LLC, or C corps, paying themselves very small salaries and then taking the rest of their compensation in the form of dividends which are not subject to FICA. They are quick to point out to me what fool am for not employing such a strategy in my own biz. If Congress was able to close that hole without destroying the benefits of the corporate structure, I can tell you they would have done it many years ago. If you subject 100% of wage income to FICA it will have little effect on receipts from the high end which it targets, you can expect a flood of new corporate entities and stock compensation schemes. This was the effect of the short-sighted laws limiting the deductibility of CEO compensation to a million, compensation was simply re-structured to be something other than wages. Raising the profitability of tax avoidance schemes is just a full employment scheme for tax lawyers and accountants and has little effect in raising overall tax revenues or shifting ever more of the tax burden to those high wage earners. We already have a tax scheme which puts a large majority of the burden on the top half with 96% to 4% (top paying 96%, the bottom half paying 4%) on Federal tax and 95% to 5% on FICA. Top heavy tax schemes lead to extremes in volatility in tax revenues since a much higher percentage of income at the top is subject to the vagaries of the stock market and business cycle. This is how CA ended up in such a terrible fiscal condition.