Who Doesn’t Pay Federal Taxes?
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Payroll taxes are FICA (http://en.wikipedia.org/wiki/FICA). It's 6.2% income up to $102,000 and then you pay nothing after that. It pays for Medicare and Social Security.
Income tax is a separate graduated tax on wages. Due to various credits, it doesn't seem like you pay anything until you make it to almost median income. When people talk about rolling back the Bush tax cuts on the rich, it's this one.
Capital Gains taxes are yet a third form of tax. Right now, long-term gains are taxed at a lower rate (15%).
It used to be ... 7.7% I think - 15.4% total, IIRC, up until a couple years ago. It was lowered for 1 year, and I doubt it'll go up again any time soon.
If we need to increase revenue, raising the cap from $102k to... something like $110k or $150k would capture a moderate amount of money with almost no real pain to most people. $102k is rather arbitrary, and hasn't been changed in years. Likewise the ridiculously low $600 1099 reporting requirements.
It's already $110k....
> or $150k would capture a moderate amount of money with almost no real pain to most people
SS benefits are monotonic in "contributions" so increasing the cap increases the eventual payout for folks who contribute more because of the increased cap. In other words, increasing the cap doesn't just increase the revenues, it increases the costs as well. The increased revenue may exceed the present value of the increased costs but ....
And no, you can't ignore future payouts. If you don't fund with NPV, you're setting up a death spiral that will hit those on the bottom hardest.
Or, are you planning to leave the benefits cap where it is?
The "contributions" cap was put into place by SSs early advocates because they wanted it to be ignored by well-off people. The cap on benefits and contributions accomplishes that. If you cap benefits but not contributions, they'll start caring, and that probably will not work out well. The alternative, uncapped benefits and contributions means that Ross Perot gets $200k/year, which is political suicide.
In other words, raising the "contributions" cap is not an easy win.
I've found that it's best to assume that things are the way they are for good reasons, that the people who came up with {whatever} were smart and well-informed, even if they didn't have digital watches. It may be possible to do better than they did, but if I don't know what those good reasons are, I don't know enough to propose something better. Yes, there are exceptions, but they're rare enough to be ignored.
Look at the $600 1099. That's been $600 for... a heck of a long time. The original target is no longer the same, and it's become a bigger burden on small businesses. keeping it as it is may have 'good reasons', but they're not the reasons (or at least stated reasons) it was initially set at that level.
I don't disagree with your point entirely, but I'm somewhat perplexed that this issue never comes up in election years. "Raising taxes" as a general term means nothing, and 'no new taxes'... well.. that can mean nothing, because we can fiddle with limits like these to modify revenue.
AFAIK there was no change in benefit values even though the rate went from 15% to 13% (approx). So we can drop revenue but need to keep benefits levels the same, but we can't raise revenue without leaving them the same? I'd prefer some degree of 'means' testing - not an entirely binary yes/no, but scale back benefits over a certain amount if your assets are above a certain level. Those whose assets drop/fall a lot, but have payed in higher amounts over the years would be allowed higher ss payouts to compensate for their new levels. this position may be too nuanced to take on a campaign trail though.
That change was done as temporary "stimulus". Are you suggesting that we engage in permanent "anti-stimulus"? (FWIW, I think that the drop was dumb.)
More to the point, that change wasn't the opposite of raising the cap as the reduction applied to everyone's contributions so it isn't directly relevant to a cap discussion. You need more facts and arguments, IMHO.
As for your $600 threshold for 1099 argument, the analogous argument is that the earnings contribution cap should be indexed to inflation. (It may be going up a bit faster than inflation.) It is index, you're either arguing for the status quo or more. Which is it?
And, you didn't address my argument about the hows and whys of the cap. Instead, you went off in a different direction. Fair enough - I'll play along.
> I'd prefer some degree of 'means' testing
Why is your vague scheme better than the two ways that SS benefits are means-tested today? (There may be more than two - I'm fairly ignorant of SS.)
I should say that I'm starting to change my position on SS. When I was younger, I didn't see why younger folks should subsidize older ones. Now that I'm older, I'm beginning to see the wisdom of such policies.
SS has been cash-flow negative for a couple of years. While I applaud your efforts to keep the money flowing until I get mine back, do you really think that the next generation is going to do the same for you?
Payroll tax = tax on wages earned (i.e., taxes paid by an employer to an employee) which go toward Medicare, SS, etc. Independent contractors do not receive wages (i.e., they are not on a payroll), so they make their Medicare/SS contributions through separate but similar taxes on their contracting income. As another commenter has pointed out, these Medicare/SS contributions are generally referred to as FICA (Federal Insurance Contributions Act) taxes, after the act authorizing their collection.
I think that would be a good thing, but a lot of income from investments is categorized as capital gain, and this is not counted the same way as other income.
For example, collectibles are taxed at a 28% rate, recapture income is taxed at a 25% rate, and short-term income is subject to the graduated ordinary-income tax scheme.