Friday, February 04, 2005

Investing Social Security in the Stock Market

I have been thinking that the stock market itself is in trouble for the same reason that Social Security is in trouble: The baby boom. As the boomers age and start taking their money out of the market rather than putting it in, demand for stocks go down and the market crashes. Putting a portion of Social Security into stocks rather than the general fund actually saves the rest of people's savings (assuming they have 401ks or stocks of any sort).

Plus, since Social Security funds go into the general fund and the government agrees that it is not a guaranteed system, doesn't it make it so some lower income people pay a higher marginal tax rate than higher income people? For example, if someone is self employed (but really anybody because whether the employer pays half for you or you pay it is still your money in my opinion) and making exactly the maximum taxable income for Social Security ($87,900), I think he pays a higher rate than someone making $250,000. Doesn't this argue for removing the cap on Social Security taxes? Wouldn't that solve the problem?

Rough Math:

Income tax schedule:

$0 to $14,300: 10% of the amount over $0
$14,300 to $58,100: $1,430.00 plus 15% of the amount over 14,300
$58,100 to $117,250: $8,000.00 plus 25% of the amount over 58,100
$117,250 to $178,650: $22,787.50 plus 28% of the amount over 117,250
$178,650 to $319,100: $39,979.50 plus 33% of the amount over 178,650
$319,100 to no limit: $86,328.00 plus 35% of the amount over 319,100

$87,900 taxable income
Income tax = 8,000 + 25%(87900-58100) < 7,450> = 15450
+ Social Security tax 12.4%(87,900) = 10899.6
15450+10899.6
= $26349.6 = Total taxes equals 30% of $87,900

Tax rate is 25% from 87,900 to 117, 250. = 7337.5 + 26349.6 = 33687.1 = 28.7 % rate on $117,250.
Tax rate is 28% from 117,250 to $178,650 = 17192 + 33697.1= 50889.1 = 28.5% rate on $178,650.
Tax Rate is 33% from 178,650 to 319,100 = 46348.5 + 50889.1 = 97237.6 = 30.5% rate on $319,100.

$250,000 23545.5+ 50889.1= 74434.6 = 29.7% of $250,000
$275,000 31795.5 + 50889.1 = 82684.6 = 30.06% of $275,000

So it appears to me that someone making up to $275,000 dollars a year is paying a lower percentage to the general fund than someone making $87,900. I don't believe in a graduated tax system, but it certainly should not be upside down.




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