future Social Security benefits and taxes

into 401(k)-

Someone correct me if I'm wrong, but isn't there already a tax credit in place for low-income people who contribute to retirement accounts? I recall refering someone to it a couple of years ago. Maybe it's not permanent.

--Bill

How about investing at least part of the "trust fund" into the stock market? Had they done that it would've greatly reduced any current problems.

Gosh, it they had just put it in a regular passbook savings account or some corporate bonds it would have generated more revenue than their current method. I doubt a bill allowing investing in the stock market would ever get passed, but surely a bill to allow them to invest in other than government securities should be in order.

Elizabeth Richardson

by using them

into 401(k)-

Perhaps you mean the EITC, which is a refundable tax credit which offsets payroll taxes that low-income folks pay.

In addition, there's a Retirement Savings Contribution Credit (which helps low-income folks out a hell of a lot more than a tax deduction, since their marginal tax rates are so low). The RSCC can be as much as 50% of the retirement plan contribution (ie. so a low-income person who put $1000 into his employer's 401k will get his taxes reduced by $500 even though his marginal tax rate is certainly not 50%). This credit is not available to minors, full-time students or dependents.

See IRS Form 8880 for more details:

This credit is available to folks who earn less than $25,000 (or as much as $50,000 if filing jointly), though it phases out pretty quickly (ie. the 50% credit is for folks who make up to $15k, and then it goes down to 20%).

I thought the article was quite biased. In addition it stated problems for everything and solutions for nothing (or few real solutions). There was one comment on no more borrowing/spending from the "SS trust fund", which was the best statement, and is an obvious solution to part of the problem, IMO.

The real solution is to design SS the way the gov't wants it to work, whether this is the same as it is now with much higher ages to collect or reduced benefits for those which collect or some other design... then come up with a compromise to transition to it.

======================================= MODERATOR'S COMMENT: Posters to this thread should relate comments to financial planning.

Maybe. First of all, this year there is about $185 Billion dollars being loaned to the rest of the government. If we take that money and invest it in the stock market, the deficit goes up by $185 billion dollars, which isn't good press for congress.

Also the market doesn't always go up, we're still under the peak of

1. Lots of people get upset if their hard earned money gets "lost" in the stock market, especially seniors who expect to retire.

Also, what stocks to invest? Lots of people would be upset if SS money were invested in tobacco or other "sin" taxes. What policies would be voted on at the yearly stock holder meetings?

The rate earned in 2005 was 5.451 percent. That's higher interest than any passbook I know. I personally don't want the SS money invest in junk bonds.

It is incredible to me that someone at Wikipedia is claiming that EITC "offsets payroll taxes" -- how is that any different from saying, for example, that it "offsets fill-ups at the gas station" or that it "offsets Happy Meals purchased at McDonalds"? Is there something I'm missing here?

-Mark Bole

Obviously, you're missing the mechanism by which the size of the credit is calculated. "It offsets payroll taxes" means that the size of the credit is related to the quantity of payroll taxes that one pays. No matter how many happy meals and gallons of gas you buy, those purchases have no impact on the size of your EITC credit. However, if you are in a low enough income bracket, but you earn some wages and pay some payroll taxes (as opposed to being in a low income bracket but earn only dividends or something), you may avail yourself of a tax credit sized such that it offsets those payroll taxes you had to pay on those wages you earned.

It's meant specifically to address some of the disincentives facing low income wage earners, particularly those who may pay no income taxes but are still hit with payroll taxes.

That's what I'm having a hard time seeing. Payroll taxes are fixed at a total of 15.3% of wages (including employer share) or self-employment income. The EIC varies all over the place depending on filing status, number of qualifying children, and earnings.

If a taxpayer is at the right-hand side of the EIC curve, where the credit actually declines for every extra dollar earned, and yet the payroll tax inexorably goes up (fixed percent), how can one tax be said to offset the other?

Also, if it were truly an "offset", then wouldn't the worker lose the Soc. Security credits from the payroll tax that was being "offset" by the EIC? But that is not the case, they continue to pay the payroll tax and earn the credits no matter the amount of EIC.

The way the Wikipedia entry is written, it implies that lawmakers said "we have implemented one tax, and now we are going to implement a credit specifically to cancel out that tax in some situations". This is what I disagree with, or would like to see a further reference to.

In other words, it's government welfare with a work incentive component.

-Mark Bole

Except that it's not.

It's based on earned income and how many kids you have. And the EITC at first goes as earned income increases, hits a peak, then declines as earned income continues to increase.

No, it doesn't. The EITC is not related to the amount of SS+Medicare taxes paid. Look at the EITC tables in the

1040 instructions.

Let's be intellectually honest, the Social Security Trust Fund is just an accounting gimmick. There is nothing to invest as all the money has already been spent by the rest of the Federal Government.

======================================= MODERATOR'S COMMENT: Posters to this thread should relate comments to financial planning.

Sounds like a loan from a 401(k). And just like a loan from a 401(k), you better not squander it on a vacation.

Did anyone say that it was? It's a debt.

-Will

Please reread the full post. The reason for the short lesson is that many people believe that the money a certain Government owes itself is an asset and not a debt.