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Accessible Unlicensed Requires Authentication Published by De Gruyter August 7, 2013

Entitlement Reform: From Tangled Web to Safety Net

Steven O. Richardson
From the journal Basic Income Studies

Abstract

So far, most options for protecting the viability of Social Security have tinkered with financing and eligibility rules that do nothing about design flaws that led to our current fiscal crisis – regressive transfers, unfunded liabilities, and inefficient funding of retirement benefits. Under the current system, payroll taxes rob the first dollars of earnings from the working poor and from others who would prefer real savings to a promise of future benefits from the government, while retirees who do not need public support fight for their earned benefits. My proposal, Social Security Basic Income, replaces a rigid formula for forced savings and intergenerational transfers with a pay-as-you-go welfare program funded from general revenue that provides basic income to poor people, regardless of age. Comparative static analysis of the impact of this system on individuals finds that a generous safety net will not significantly increase total federal expenditures or individual tax burdens.

Appendix

Tables 1–6 illustrate how the SSBI provisions described above would determine the payment or taxes due for taxpayers with incomes at 0, ½, 1, 1 ½, 2, 3, 4, 5, and 10 times the BI. The primary sort order is filing status – single or married – because SSBI will be implemented through income tax returns. The first three tables apply to single filers and the last three apply to married filers. Within each of those categories, the tables sort earned, unearned, and mixed income sources to distinguish impact on workers, retirees, and others who do not fit squarely in either category. At each income level and for each source of income, separate calculations are provided for filers with zero, one, and two dependents.

The first five columns identify income – earnings, Social Security benefits, other unearned income, the total of these three (AGI), and the BI. The next five columns identify personal exemption amounts (rounded up), taxable income, FIT, the BI surtax, and FI surtax.32 BI payments and net income appear in the next two columns. The next five columns show comparable calculations under the SQ – taxable income, OASDI tax, FIT, EITC, and net income.34 The last column subtracts the SQ estimate from the SSBI estimate. Positive amounts in this column indicate filers with that row’s profile are SSBI beneficiaries; negative amounts indicate they would help fund the program.

Table 1:

Estimated impact of SSBI on net incomes of single filers with earned income only.

EarnedOASDIOtherAGIBIExemptTaxableFITBI surtaxFI surtaxBI paymentNetSQ taxableSQ OASDISQ FITSQ EITCSQ NetNet – SQNet
15,500005,50011,0004,0001,5001501,37509,47514,975034104235,5829,393
25,500005,50011,0008,000001,37509,62515,125034101,8797,0388,087
35,500005,50011,00012,000001,37509,62515,125034102,2107,3697,756
411,0000011,00011,0004,0007,0007002,75007,55018,5501,00068210020210,4208,130
511,0000011,00011,0008,0003,0003002,75007,95018,950068203,09413,4125,538
611,0000011,00011,00012,000002,75008,25019,250068204,41014,7284,522
722,0000022,00011,0004,00018,0002,2755,50003,22525,22512,0001,3641,375019,2615,964
822,0000022,00011,0008,00014,0001,6755,50003,82525,8258,0001,3648002,24122,0773,748
922,0000022,00011,00012,00010,0001,0755,50004,42526,4254,0001,3644003,98824,2242,201
1033,0000033,00011,0004,00029,0003,9258,2500031,82523,0002,0463,025027,9293,896
1133,0000033,00011,0008,00025,0003,3258,2500032,42519,0002,0462,42548429,0133,412
1233,0000033,00011,00012,00021,0002,7258,25002533,02515,0002,0461,8251,67230,8012,224
1344,0000044,00011,0004,00040,0006,95011,0000037,05034,0002,7284,675036,597453
1444,0000044,00011,0008,00036,0005,35011,0000038,65030,0002,7284,075037,1971,453
1544,0000044,00011,00012,00032,0004,37511,0000039,62526,0002,7283,475037,7971,828
1655,0000055,00011,0004,00051,0009,72511,00050045,22545,0003,4108,225043,3651,860
1755,0000055,00011,0008,00047,0008,72511,0000046,27541,0003,4107,225044,3651,910
1855,0000055,00011,00012,00043,0007,72511,0000047,27537,0003,4105,750045,8401,435
19110,00000110,00011,0004,000106,00028,89711,0002,800078,303100,0006,62226,567076,8111,492
20110,00000110,00011,0008,000102,00027,62711,0002,600079,77396,0006,62224,447078,931842
21110,00000110,00011,00012,00098,00025,50711,0002,400082,09392,0006,62222,327081,0511,042

Table 2:

Estimated impact of SSBI on net incomes of single filers with unearned income only.33

EarnedOASDIOtherAGIBIExemptTaxableFITBI surtaxFI surtaxBI paymentNetSQ taxableSQ OASDISQ FITSQ NetNet – SQNet
1000011,0004,000000011,00011,000000011,000
2000011,0008,000000011,00011,000000011,000
3000011,00012,000000011,00011,000000011,000
405,50005,50011,0004,00000005,50011,0000005,5005,500
505,50005,50011,0008,00000005,50011,0000005,5005,500
605,50005,50011,00012,00000005,50011,0000005,5005,500
7005,5005,50011,0004,0001,5001501,65009,20014,7000005,5009,200
8005,5005,50011,0008,000001,65009,35014,8500005,5009,350
9005,5005,50011,00012,000001,65009,35014,8500005,5009,350
1005,5005,50011,00011,0004,0001,5001501,65003,70014,70000011,0003,700
1105,5005,50011,00011,0008,000001,65003,85014,85000011,0003,850
1205,5005,50011,00011,00012,000001,65003,85014,85000011,0003,850
130011,00011,00011,0004,0007,0007003,30007,00018,0001,000010010,9007,100
140011,00011,00011,0008,0003,0003003,30007,40018,40000011,0007,400
150011,00011,00011,00012,000003,30007,70018,70000011,0007,700
16011,000011,00011,0004,0000000011,00000011,0000
17011,000011,00011,0008,0000000011,00000011,0000
18011,000011,00011,00012,0000000011,00000011,0000
19011,00011,00022,00011,0004,0007,0007003,3000021,3001,000010021,900–600
20011,00011,00022,00011,0008,0003,0003003,3000021,70000022,000–300
21011,00011,00022,00011,00012,000003,3000022,00000022,0000
220022,00022,00011,0004,00018,0002,2756,60002,12524,12512,00001,37520,6253,500
230022,00022,00011,0008,00014,0001,6756,60002,72524,7258,000080021,2003,525
240022,00022,00011,00012,00010,0001,0756,60003,32525,3254,000040021,6003,725
25022,000022,00011,0004,0007,00070000021,30000022,000–700
26022,000022,00011,0008,0003,00030000021,70000022,000–300
27022,000022,00011,00012,0000000022,00000022,0000
28016,50016,50033,00011,0004,00018,0002,2754,9500030,7256,500065032,350–1,625
29016,50016,50033,00011,0008,00014,0001,6754,9500031,3252,500025032,750–1,425
30016,50016,50033,00011,00012,00010,0001,0754,9500031,92500033,000–1,075
310033,00033,00011,0004,00029,0003,9259,9000030,17523,00003,02529,975200
320033,00033,00011,0008,00025,0003,3259,9000030,77519,00002,42530,575200
330033,00033,00011,00012,00021,0002,7259,9000031,37515,00001,82531,175200
34030,0003,00033,00011,0004,00018,0002,2759000030,72500033,000–2,275
35030,0003,00033,00011,0008,00014,0001,6759000031,32500033,000–1,675
36030,0003,00033,00011,00012,00010,0001,0759000031,92500033,000–1,075
37022,00022,00044,00011,0004,00029,0003,9256,6000040,07523,00003,02540,975–900
38022,00022,00044,00011,0008,00025,0003,3256,6000040,67519,00002,42541,575–900
39022,00022,00044,00011,00012,00021,0002,7256,6000041,27515,00001,82542,175–900
400044,00044,00011,0004,00040,0006,95011,0000037,05034,00004,67539,325–2,275
410044,00044,00011,0008,00036,0005,35011,0000038,65030,00004,07539,925–1,275
420044,00044,00011,00012,00032,0004,37511,0000039,62526,00003,47540,525–900
43030,00014,00044,00011,0004,00029,0003,9254,2000040,07519,00002,42541,575–1,500
44030,00014,00044,00011,0008,00025,0003,3254,2000040,67515,00001,82542,175–1,500
45030,00014,00044,00011,00012,00021,0002,7254,2000041,27515,00001,82542,175–900
46027,50027,50055,00011,0004,00040,0006,9508,2500048,05040,87507,19447,806244
47027,50027,50055,00011,0008,00036,0005,3508,2500049,65036,87505,70049,300350
48027,50027,50055,00011,00012,00032,0004,3758,2500050,62532,87504,50650,494131
490055,00055,00011,0004,00051,0009,72511,00050045,22545,00008,22546,775–1,550
500055,00055,00011,0008,00047,0008,72511,0000046,27541,00007,22547,775–1,500
510055,00055,00011,00012,00043,0007,72511,0000047,27537,00005,75049,250–1,975
52030,00025,00055,00011,0004,00040,0006,9507,5000048,05040,50007,10047,900150
53030,00025,00055,00011,0008,00036,0005,3507,5000049,65036,50005,55049,450200
54030,00025,00055,00011,00012,00032,0004,3757,5000050,62532,50004,45050,55075
55030,00080,000110,00011,0004,00095,00023,91711,0002,250083,83395,500024,18285,818–1,985
56030,00080,000110,00011,0008,00091,00021,79711,0002,050086,15391,500022,06287,938–1,785
57030,00080,000110,00011,00012,00087,00019,67711,0001,850088,47387,500019,94290,058–1,585
5800110,000110,00011,0004,000106,00028,89711,0002,800078,303100,000026,56783,433–5,130
5900110,000110,00011,0008,000102,00027,62711,0002,600079,77396,000024,44785,553–5,780
6000110,000110,00011,00012,00098,00025,50711,0002,400082,09392,000022,32787,673–5,580

Table 3:

Estimated impact of SSBI on net incomes of single filers with earned and unearned income.

EarnedOASDIOtherAGIBIExemptTaxableFITBI surtaxFI surtaxBI paymentNetSQ taxableSQ OASDISQ FITSQ NetNet – SQNet
15,5005,500011,00011,0004,0001,5001501,37503,97514,9750341010,6594,316
25,50005,50011,00011,0004,0007,0007003,02507,27518,2751,00034110010,5597,716
311,00011,000022,00011,0004,0007,0007002,7500021,3001,00068210021,21882
411,000011,00022,00011,0004,00018,0002,2756,05002,67524,67512,0006821,37519,9434,732
516,50016,500033,00011,0004,00018,0002,2754,1250030,7256,5001,02365031,327–602
616,500016,50033,00011,0004,00029,0003,9259,0750031,00023,0001,0233,02528,9522,048
722,00022,000044,00011,0004,00029,0003,9255,5000040,07523,0001,3643,02539,611464
822,000022,00044,00011,0004,00040,0006,95011,0000037,05034,0001,3644,67537,961–911
927,50027,500055,00011,0004,00040,0006,9506,8750048,05040,8751,7057,19446,1011,949
1027,500027,50055,00011,0004,00051,0009,72511,00050045,22545,0001,7058,22545,070155
1155,00030,00025,000110,00011,0004,00095,00023,91711,0002,250083,83395,5003,41024,18282,4081,425
1255,000055,000110,00011,0004,000106,00028,89711,0002,800078,303100,0003,41026,56780,023–1,720

Table 4:

Estimated impact of SSBI on net incomes of married filers with earned income only.

EarnedOASDIOtherAGIBIExemptTaxableFITBI surtaxFI surtaxBI paymentNetSQ taxableSQ OASDISQ FITSQ EITCSQ NetNet – SQNet
111,0000011,00022,0008,0003,0003002,750018,95029,950068201,87912,19717,753
211,0000011,00022,00012,000002,750019,25030,250068202,21012,52817,722
311,0000011,00022,00016,000002,750019,25030,250068202,48612,80417,446
422,0000022,00022,0008,00014,0001,4005,500015,10037,1002,0001,3642003,05323,48913,611
522,0000022,00022,00012,00010,0001,0005,500015,50037,50001,36405,05825,69411,806
622,0000022,00022,00016,0006,0006005,500015,90037,90001,36405,69726,33311,567
744,0000044,00022,0008,00036,0004,55011,00006,45050,45024,0002,7282,750038,52211,928
844,0000044,00022,00012,00032,0003,95011,00007,05051,05020,0002,7282,15042539,54711,503
944,0000044,00022,00016,00028,0003,35011,00007,65051,65016,0002,7281,6001,06440,73610,914
1066,0000066,00022,0008,00058,0007,85016,5000063,65046,0004,0926,050055,8587,792
1166,0000066,00022,00012,00054,0007,25016,5000064,25042,0004,0925,450056,4587,792
1266,0000066,00022,00016,00050,0006,65016,5000064,85038,0004,0924,850057,0587,792
1388,0000088,00022,0008,00080,00013,90022,0000074,10068,0005,4569,350073,194906
1488,0000088,00022,00012,00076,00012,30022,0000075,70064,0005,4568,750073,7941,906
1588,0000088,00022,00016,00072,00010,70022,0000077,30060,0005,4568,150074,3942,906
1611,000000110,00022,0008,000102,00019,45022,000100090,45090,0006,82016,450086,7303,720
17110,00000110,00022,00012,00098,00018,45022,0000091,55086,0006,82015,450087,7303,820
18110,00000110,00022,00016,00094,00017,45022,0000092,55082,0006,82014,450088,7303,820
19220,00000220,00022,0008,000212,00058,63022,0005,6000155,771200,00013,24455,2700151,4874,284
20220,00000220,00022,00012,000208,00057,51022,0005,4000157,091196,00013,24454,1500152,6074,484
21220,00000220,00022,00016,000204,00056,39022,0005,2000158,411192,00013,24453,0300153,7274,684

Table 5:

Estimated impact of SSBI on net incomes of married filers with unearned income only.

EarnedOASDIOtherAGIBIExemptTaxableFITBl surtaxFl surtaxBI paymentNetSQ taxableSQ OASDISQ FITSQ NetNet – SQNet
1000022,0008,000000022,00022,000000022,000
2000022,00012,000000022,00022,000000022,000
3000022,00016,000000022,00022,000000022,000
405,50005,50022,0008,000000016,50022,0000005,50016,500
505,50005,50022,00012,000000016,50022,0000005,50016,500
605,50005,50022,00016,000000016,50022,0000005,50016,500
7005,5005,50022,0008,000001,650020,35025,8500005,50020,350
8005,5005,50022,00012,000001,650020,35025,8500005,50020,350
9005,5005,50022,00016,000001,650020,35025,8500005,50020,350
1005,5005,50011,00022,0008,000001,650014,85025,85000011,00014,850
1105,5005,50011,00022,00012,000001,650014,85025,85000011,00014,850
1205,5005,50011,00022,00016,000001,650014,85025,85000011,00014,850
130011,00011,00022,0008,0003,0003003,300018,40029,40000011,00018,400
140011,00011,00022,00012,000003,300018,70029,70000011,00018,700
150011,00011,00022,00016,000003,300018,70029,70000011,00018,700
16011,000011,00022,0008,000000011,00022,00000011,00011,000
17011,000011,00022,00012,000000011,00022,00000011,00011,000
18011,000011,00022,00016,000000011,00022,00000011,00011,000
19011,00011,00022,00022,0008,0003,0003003,30007,40029,40000022,0007,400
20011,00011,00022,00022,00012,000003,30007,70029,70000022,0007,700
21011,00011,00022,00022,00016,000003,30007,70029,70000022,0007,700
220022,00022,00022,0008,00014,0001,4006,600014,00036,0002,000020021,80014,200
230022,00022,00022,00012,00010,0001,0006,600014,40036,40000022,00014,400
240022,00022,00022,00016,0006,0006006,600014,80036,80000022,00014,800
25022,000022,00022,0008,0000000022,00000022,0000
26022,000022,00022,00012,0000000022,00000022,0000
27022,000022,00022,00016,0000000022,00000022,0000
28016,50016,50033,00022,0008,0008,5008504,9500032,70000033,000–300
29016,50016,50033,00022,00012,0004,5004504,950010033,10000033,000100
30016,50016,50033,00022,00016,000500504,950050033,50000033,000500
310033,00033,00022,0008,00025,0002,9009,90009,20042,20013,00001,30031,70010,500
320033,00033,00022,00012,00021,0002,3009,90009,80042,8009,000090032,10010,700
330033,00033,00022,00016,00017,0001,7009,900010,40043,4005,000050032,50010,900
34030,0003,00033,00022,0008,0003,0003009000032,70000033,000–300
35030,0003,00033,00022,00012,000009000033,00000033,0000
36030,0003,00033,00022,00016,000009000033,00000033,0000
37022,00022,00044,00022,0008,00014,0001,4006,6000042,60013,00001,30042,700–100
38022,00022,00044,00022,00012,00010,0001,0006,6000043,00011,00001,10042,900100
39022,00022,00044,00022,00016,0006,0006006,6000043,40011,00001,10042,900500
400044,00044,00022,0008,00036,0004,55013,20004,25048,25024,00002,75041,2507,000
410044,00044,00022,00012,00032,0003,95013,20004,85048,85020,00002,15041,8507,000
420044,00044,00022,00016,00028,0003,35013,20005,45049,45016,00001,60042,4007,050
43030,00014,00044,00022,0008,00014,0001,4004,2000042,60000044,000–1,400
44030,00014,00044,00022,00012,00010,0001,0004,2000043,00000044,000–1,000
45030,00014,00044,00022,00016,0006,0006004,2000043,40000044,000–600
46027,50027,50055,00022,0008,00025,0002,9008,2500052,10021,25002,33852,663–563
47027,50027,50055,00022,00012,00021,0002,3008,2500052,70017,25001,73853,263–563
48027,50027,50055,00022,00016,00017,0001,7008,2500053,30013,75001,37553,625–325
490055,00055,00022,0008,00047,0006,20016,5000054,30035,00004,40050,6003,700
500055,00055,00022,00012,00043,0005,60016,5000054,90031,00003,80051,2003,700
510055,00055,00022,00016,00039,0005,00016,500050055,50027,00003,20051,8003,700
52030,00025,00055,00022,0008,00025,0002,9007,5000052,10020,00002,15052,850–750
53030,00025,00055,00022,00012,00021,0002,3007,5000052,70016,00001,60053,400–700
54030,00025,00055,00022,00016,00017,0001,7007,5000053,30015,00001,50053,500–200
550066,00066,00022,0008,00058,0007,85019,8000060,35046,00006,05059,950400
560066,00066,00022,00012,00054,0007,25019,8000060,95042,00005,45060,550400
570066,00066,00022,00016,00050,0006,65019,8000061,55038,00004,85061,150400
58030,00036,00066,00022,0008,00036,0004,55010,8000061,45041,50005,37560,625825
59030,00036,00066,00022,00012,00032,0003,95010,8000062,05037,50004,77561,225825
60030,00036,00066,00022,00016,00028,0003,35010,8000062,65033,50004,17561,825825
610088,00088,00022,0008,00080,00013,90022,0000074,10068,00009,35078,650–4,550
620088,00088,00022,00012,00076,00012,30022,0000075,70064,00008,75079,250–3,550
630088,00088,00022,00016,00072,00010,70022,0000077,30060,00008,15079,850–2,550
64030,00058,00088,00022,0008,00058,0007,85017,4000080,15063,50008,67579,325825
65030,00058,00088,00022,00012,00054,0007,25017,4000080,75059,50008,07579,925825
66030,00058,00088,00022,00016,00050,0006,65017,4000081,35055,50007,47580,525825
67030,00080,000110,00022,0008,00080,00013,90022,0000096,10085,500015,32594,6751,425
68030,00080,000110,00022,00012,00076,00012,30022,0000097,70081,500014,32595,6752,025
69030,00080,000110,00022,00016,00072,00010,70022,0000099,30077,500012,90097,1002,200
7000110,000110,00022,0008,000102,00019,45022,000100090,45090,000016,45093,550–3,100
7100110,000110,00022,00012,00098,00018,45022,0000091,55086,000015,45094,550–3,000
7200110,000110,00022,00016,00094,00017,45022,0000092,55082,000014,45095,550–3,000
73030,000190,000220,00022,0008,000190,00052,47022,0004,5000163,031195,500054,010165,991–2,960
74030,000190,000220,00022,00012,000186,00051,35022,0004,3000164,351191,500052,890167,111–2760
75030,000190,000220,00022,00016,000182,00050,23022,0004,1000165,671187,500051,770168,231–2,560
7600220,000220,00022,0008,000212,00058,63022,0005,6000155,771200,000055,270164,731–8,960
7700220,000220,00022,00012,000208,00057,51022,0005,4000157,091196,000054,150165,851–8,760
7800220,000220,00022,00016,000204,00056,39022,0005,2000158,411192,000053,030166,971–8,560

Table 6:

Estimated impact of SSBI on net incomes of married filers with earned and unearned income.

EarnedOASDIOtherAGIBIExemptTaxableFITBI surtaxFI surtaxBI paymentNetSQ taxableSQ OASDISQ FITSQ NetNet – SQNet
15,5005,500011,00022,0004,0001,5001501,375014,97525,9750341010,65915,316
25,50005,50011,00022,0004,0007,0007003,025018,27529,2750341010,65918,616
311,00011,000022,00022,0004,0007,0007002,75007,55029,5500682021,3188,232
411,000011,00022,00022,0004,00018,0001,8506,050014,10036,1006,00068260020,71815,382
516,50016,500033,00022,0004,00012,5001,2504,125012533,1255001,0235031,9271,198
616,500016,50033,00022,0004,00029,0003,5009,07509,42542,42517,0001,0231,70030,27712,148
722,00022,000044,00022,0004,00018,0001,8505,5000042,15017,0001,3641,70040,9361,214
822,000022,00044,00022,0004,00040,0005,15012,10004,75048,75028,0001,3643,35039,2869,464
933,00033,000066,00022,0004,00040,0005,1508,2500060,85045,0502,0465,90858,0472,804
1033,000033,00066,00022,0004,00062,0008,45018,1500061,40050,0002,0466,65057,3044,096
1144,00044,000088,00022,0004,00062,0008,45011,0000079,55065,4002,7288,96076,3123,238
1244,000044,00088,00022,0004,00084,00014,95022,0000073,05072,0002,72810,70074,572–1,522
1355,00030,00025,000110,00022,0004,00084,00014,95021,2500095,05089,5003,41016,32590,2654,785
1455,000055,000110,00022,0004,000106,00020,45022,000300089,25094,0003,41017,45089,140110
15110,00030,00080,00022,000022,0004,000194,00053,59022,0004,7000161,711199,5006,82055,130158,0513,660
16110,000110,000220,00022,0004,000216,00060,97122,0005,8000153,230204,0006,82056,390156,791–3,561

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  1. 1

    “Social Security” can describe a general category of income insurance common in many countries. In this case, it is capitalized to indicate reference to the U.S. variant known officially as the Old-Age, Survivors, and Disability Insurance (OASDI) program established in 1935 (U.S. Government Accountability Office, 2005, p. 3). Hereafter, I will use the terms Social Security and OASDI interchangeably.

  2. 2

    OASDI benefit costs exceed tax revenues, and the deficit is growing (U.S. Social Security Administration, 2011a). Federal payroll taxes of 6.2% and 1.45% of wages fund OASDI and Medicare’s Hospital Insurance program, respectively. These taxes are paid by employers and employees in equal shares (total 15.3%). Recent experience with a 2% payroll tax holiday may lead to consideration of a permanent shift to general revenue funding. In 2011–2012, employees’ share of the OASDI tax was reduced to 4.2% (U.S. Social Security Administration, 2012). The relief measure was enacted to assist recovery from the recession that began in 2008.

  3. 3

    For decades, Social Security has been promoted as a savings program “to spare Social Security’s 54 million recipients the discomfort of understanding they’re on welfare.” But it taxes one group to pay benefits to another group as dictated by Congress, and it is a pay-as-you-go system (Samuelson, 2011). Some have gone further, criticizing Social Security not just for hiding welfare as savings but for operating like a Ponzi scheme by creating the illusion of return on investments (Tanner, 2011).

  4. 4

    Welfare is defined here as transfer payments – benefit payments in excess of taxes paid and interest earned. The basic income guarantee is not a new concept; its features and a summary of the policy issues are provided by Van Parijs (2006). For a brief history of proposals to apply it in the U.S., see Caputo (2012). Allan Sheahen (2012) answers 146 questions (in favor of BIG) on whether America could and should adopt the policy.

  5. 5

    Hereafter, BI will indicate the BI amount, payment, or benefit. SSBI will continue to refer to the program as a whole, including funding structure.

  6. 6

    If SSBI is adopted, reform of the tax code will not likely be limited to replacing the payroll tax by income taxes as proposed. To keep the discussion focused and manageable, analysis is comparative static, that is, taxes and programs not explicitly replaced or modified are assumed to continue. BI replaces the standard deduction but does not affect other allowable deductions. Coordination with the IRS could minimize cash exchange using FIT withholding.

  7. 7

    Tax schedule information is for 2011 (U.S. Department of the Treasury, 2011).

  8. 8

    Exceptions apply to qualified individuals with long-term disabilities and to survivors of qualified individuals.

  9. 9

    SSI is a federal means-tested program funded by general revenue of the U.S. Treasury. It is designed to provide a monthly payment to aged, blind, or disabled people with limited income and resources. Adults, as well as children, can receive payments based on disability or blindness. In FY 2011, the maximum monthly benefit was $674; payments were made to 8.1 million individuals totaling $49.041 billion (U.S. Social Security Administration, 2011a).

  10. 10

    EITC is a refundable credit against federal income tax on earnings for those with relatively low incomes. If the credit reduces tax liability to zero, the government pays the amount left over as an income supplement. In 2012, qualifying income ceilings ranged from $13,980 for single filers with no children to $50,270 for married filers with three or more children. Credits ranged from $2 to $5,891 (U.S. Department of the Treasury, 2012).

  11. 11

    The UC program is a federal–state partnership based upon federal law, but administered by state employees under state law. In states meeting the specified requirements, employers pay an effective federal tax rate of 0.6% on wages up to $7,000, or a maximum $42 per covered employee, per year. All states finance UC primarily through taxes on employers based on wages of covered workers. As a result of the many variables in states’ taxable wage bases and rates, benefit formulas, and economic conditions, actual tax rates vary greatly among the states and among individual employers within a state. For 2012, the preliminary estimated U.S. average tax rate was 0.95% of total wages; the high was 1.93% in Idaho applied to wages up to $34,100 and the low was 0.29% in the Virgin Islands applied to wages up to $23,700 (U.S. Department of Labor, 2013).

  12. 12

    Currently, about 94% of all workers are covered. Half of the estimated 11 million non-covered workers are state and local government employees; only three quarters of them are covered (U.S. Senate, 2010, p. 12).

  13. 13

    “[Presidential] candidates’ assertions that the system needs to change outnumber concrete ideas about reforming the system. This is understandable, as every potential solution seems to carry with it a heavy economic or political price tag” (Kurtzleben, 2011).

  14. 14

    Approximately $174 billion of the $675 billion in benefits paid in 2009 went to households with incomes at or above $50,000 (U.S. Department of the Treasury, 2011Table 1, column DE; U.S. Social Security Administration, 2011aTable 4.A3).

  15. 15

    A proposal by the New America Foundation to expand Social Security, while limited to pensions, is similar to SSBI in its focus on correcting poverty reduction shortcomings of the existing program and its reliance on general revenue funding (Lind, Hill, Hiltonsmith, and Freedman, 2013).

  16. 16

    TANF replaced Aid to Families with Dependent Children (AFDC), which was said to encourage dependency because benefits were offset by employment income – discouraging work. A major feature of TANF is that benefits are revoked after 2 years from those deemed able to work. This obviously reduces welfare payments compared to a system without work-related requirements. However, the positive incentive to seek work is not so clear.

  17. 17

    “[F]amilies become ineligible for TANF cash assistance at very low income levels in nearly all states” (Finch, 2011, p. 5).

  18. 18

    Bryan (2005) offers a more complete discussion of the impact of TANF work requirements and the EITC on poverty in a BIG context.

  19. 19

    Sheahen also assumed Social Security would be phased into the BIG program. His financing options went beyond those needed to pay for the estimated costs of the proposed BIG – providing a menu of sorts that included raising FIT rates, eliminating all but “single” FIT filing status, a FIT surcharge on incomes over $1 million, eliminating the payroll tax cap, taxing stock trades, taxing wealth, raising the capital gains tax rate, and raising the estate tax rate.

  20. 20

    These six goals are based on recommendations of the Concord Coalition, which identified several objectives of Social Security reform designed to ensure long-term fiscal sustainability, raise national savings, and improve generational equity (Concord, 2005).

  21. 21

    For details of this estimate, see section “Estimated Costs and Offsets” further.

  22. 22

    This is much more than the $457 billion in Social Security benefits reported on 25 million returns (U.S. Department of the Treasury 2009Table 1, columns DD-DG). I assume the difference between total benefits paid by SSA, and reported to the IRS consists of lower income beneficiaries with no other source of income whose benefits will not be taxed even under SSBI.

  23. 23

    This comes from adding the estimates in the preceding paragraph estimating BI payments and compares to the 54 million documented SS program beneficiaries cited previously. Many people will receive both types of payments.

  24. 24

    See U.S. Department of the Treasury, 2009 – Table 1.2, columns AA, AN, BA, and CA. Above 3× BI, the BI partially offsets only “new” tax liability due to elimination of the standard deduction.

  25. 25

    See U.S. Social Security Administration (2011a). Table 4.A.3 indicates that net payroll tax contributions were $637 billion in 2010.

  26. 26

    See U.S. Department of the Treasury (2009) – Table 1.2, columns V&W for married filers and columns AI&AJ, AV&AW, and BV&BW for single filers.

  27. 27

    Impact on state and local programs that deliver non-cash benefits will not affect the direct cost of SSBI.

  28. 28

    The Budget Control Act of 2011 included a poison pill in the form of automatic sequestration of Fiscal Year 2013 spending authority that became effective due to inability of Congress to agree on deficit reduction measures.

  29. 29

    Those who do not feel obligated to aid the poor, prefer leaving it to voluntary institutions, or believe income support harms beneficiaries may be more interested in dismantling existing welfare programs than improving them. However, the proper role of government and the comparative effectiveness of charity and government assistance are outside the scope of this article.

  30. 30

    Coercive redistribution is commonly associated with socialism and considered anti-capitalist. But there are other views about the relationship between government, markets, and freedom. For example, where others discussed markets as a means to freedom, Amartya Sen redefined freedom in terms of access to markets (Sen, 1999). And Louise Haagh (2012) argues that freedom for all requires stability in the form of Social Security funded by progressive taxation.

  31. 31

    Milton Friedman said of Old Age and Survivor’s Insurance (aka Social Security), “I do not see any grounds – liberal or other – on which this particular redistribution can be defended. The subsidy to the beneficiaries is independent of their poverty or wealth; the man of means receives it as much as the indigent. The tax which pays the subsidy is a flat-rate tax on earnings up to a maximum. It constitutes a larger fraction of low incomes than of high. What conceivable justification is there for taxing the young to subsidize the old regardless of the economic status of the old; for imposing a higher rate of tax for this purpose on the low incomes than on the high; or, for that matter, for raising the revenues to pay the subsidy by a tax on payrolls?” A program aimed at poverty relief “should be designed to help people not as members of particular occupational groups or age groups or wage-rate groups or labor organizations or industries” (Friedman, 1962, pp. 184, 191).

  32. 32

    FIT calculations use 2011 Tax Rate Schedules (U.S. Department of the Treasury, 2011, p. 98). The BI surtax is 25% of earned income and 30% of unearned income up to the BI amount ($11,000). The FI surtax for single filers is 5% on income between $50,000 and $125,000, 10% on amounts between $125,000 and $250,000, and 15% on amounts above $250,000. For married filers, threshold amounts are doubled to $100,000, $250,000, and $500,000.

  33. 34

    EITC columns are not included in Tables 2, 3, 5, and 6.

Published Online: 2013-08-07

©2013 by Walter de Gruyter Berlin / Boston