They don't get a "discount" - FICA has nothing to do with income tax, the IRS just collects it for the SS administration. The earner just stops paying an extra 12.4% on every dollar earned above that cap, and their benefits are capped as well. A person who makes $500k a year gets the same SS benefits as a person who makes $102K per year, the cap limit.

However, if you raise the cap, they get hit with an enormous tax increase. Income in that range will be taxed at 36/39% per dollar when the Bush tax cuts expire. Add on 12.4% additioanl plus 3-6% state income tax, and those people will be taxed in the 50-60% range on that income. That's enough to discourage working/investing, or if you are talented, moving to the U.S. The economic impact will hit us, in lower growth..

Posted at June 12, 2008 1:55 PM in response to Time Mag Sniffs At Obama's Economic Plan

They buy back stock because they have nothing else to do with the profits.. there is no other activity they can engage in with an acceptable rate of return, so they give it back to the stockholders by buying back their shares..

Posted at June 12, 2008 1:50 PM in response to Time Mag Sniffs At Obama's Economic Plan

That's pretty much how it is today - the top 1% pays like 35% of income tax revenue, the top 5% pays in the 60% range, and the bottom 50% pays about 3-4%.

FICA might not be in those numbers, but FICA is social insurance, so you technically are paying into a fund (even though the govt has emptied that fund for the past 50 years).

Posted at June 12, 2008 1:33 PM in response to Time Mag Sniffs At Obama's Economic Plan

Ad hominen attacks, coupled with poor grammar, is usually the sign of a zealot and a weak argument.

Like it or not, kozmik, we're going to burning oil for a long time into the future.. hopefully sequestering the carbon, if it makes sense, but there no way to change the infrastructure. Look around you:

* Airplanes require aviation gas and the lifecyle of an airframe is over 30 years
* Most of our logistics network is based on trucks, burning diesel, locomotives, burning diesel, and ships, burning marine diesel. Our cities, our companies, their suppliers, are all based geographically far enough apart that stuff has to be moved. People life 10-30 miles from work. All that took 2-3 generations to build after WWII - it will take a generation to change. Even the simplest actions, buying a new car, moving closer to work, take years.
* Alternative energies are exciting - I would cover Kansas with windmills if I could, but we can't even build a small windfarm off the coast here in Massachusetts without John Kerry and Edward Kennedy rising up in arms.
* I've worked for Toyota - trust me, they like the Prius, but they don't love it.. its not that profitable of a vehicle, and cost-wise, its a bear - you have to build in both the infrastructure for an internal combustion engine (fuel, coolant, oil) and an electric drivetrain (batteries, inverter). The true answer is an electric vehicle, which GM is starting to build, but will people buy it? Hopefully, if gas stays expensive..

We have simple solutions to some of these issues.. we don't like carbon, TAX IT.. HEAVILY - its simple, and will encourage people to REDUCE CARBON EMISSIONS! - drivers, energy companies, manufacturers- EVERYONE!. But we end up twisting ourselves around with subsidies, taxes, regulations, political posturing, all to cover our tails from what might be considered unpopular. And both candidates seem unwilling to break that paradigm..

Posted at June 12, 2008 1:23 PM in response to Time Mag Sniffs At Obama's Economic Plan

The problem is when those subsidies 1) are politically motivated rather than based on facts and 2) become politically untouchable.

Sugar subsidies are a good example of the former - is there some reason we have to protect a domestic sugar industry by paying twice what the rest of the world pays for the white stuff?

Ethanol is an example of #2 - the industry was subsidized to get it off the ground, and now that it is sucking up more and more corn, those who have invested in it are demanding its continuation from politicians, even with record oil prices that SHOULD have made the industry self-sufficient soon..

And not to mention union subsidies - e.g. subsidies to labor through Davis-Bacon requirements, trial bar subsidies (allowing tax expensing of up front class-action research)..

Overall, government has a key role with some regulation, watching for exernalities (pollution, or example), but aside from those, the question is who picks the best use of money - the free market, or the government, recognizing that a government of politicians can be as capricious or ineffective as anything in the free market. \

We for 30 years as a stated goals tried to encourage the Big Three to build smaller cars and for Americans to buy them. Government regulation did bupkiss, but $4 gasoline got those 4-cylinder models moving off the lot..

Posted at June 12, 2008 1:07 PM in response to Time Mag Sniffs At Obama's Economic Plan

We could pay for 10 wars in Iraq with the upcoming liability of Social Security and Medicare.. If you think the war is expensive, and use that as an argument for us being in a fiscal bind, you'd better be crying about the sky falling with entitlements coming due..

The issue isn't new social spending (or anythign else) not working.. it is that we can't afford our current spending..combined with a need to reform the AMT (which targets blue state wage earners, mostly), stick with Obama's promise not to tax earners under $250k, and reform healthcare.

Most presidents get 1 big thing, if they try move the masses.. Reagan had taxes, Bush 1 the Gulf War, Clinton tried Healthcare and failed, Bush had the Iraq War.. Obama would be lucky if healthcare is his remembered achievement. Nothing will get done tax-wise in the first year if we are in recession. Healthcare itself would take a year to argue, and 2-3 years to implement, and no one is going to mess with entitlements till they see how that's working..

Posted at June 12, 2008 12:47 PM in response to Time Mag Sniffs At Obama's Economic Plan

Bill Clinton was a moderate Democrat with a Republican Congress. Obama and his cohorts could have absolute power, but for a few filibustering Republicans that might force them to govern as moderates. Otherwise, this will be a left-wing (public sector unions, trial lawyers) free-for-all..

Posted at June 12, 2008 12:41 PM in response to Time Mag Sniffs At Obama's Economic Plan

All this comparison to regulated utilities is off the point.. regulated utilities have 2 things in common - 1, they are essential, and 2, they are EXTREMLY difficult to have competing channels. You aren't going to run 2 water lines or 2 electrical lines into your house. Companies are in essence a monopoly, and because of that, are regulated to some extent.

Oil companies are far different - there 5 big ones in the U.S. (more than there are for public accounting, operating systems, and airplanes), and if they overcharged, there's no reason someone can't pull a tanker of gasoline up to NY Harbor and start pumping it to local independant stations. You can buy your gas from a lot of outlets, and in fact, gas stations has a lot of excess capacity (how often do you wait for a pump?, so they wish to sell gas as cheaply as possible to gain customers. But the best example of a regulated market is Venezuela, where profits are regulated, with the monies being used to subsidize social spending. Anyone notice high inflation and falling production in Venezuela lately?

As for return, the whole talk about the horros of their scale of returns/profits comes from those who haven't studied finance much. Do they make a lot? Yes - but have you looked at how much capital they have to invest. If a company is debating spending $10 billion on a refinery, that project better return 10-15%, otherwise it can put the money in risk free investments like government bonds and make 6-7%, or return it to the stockholders and let them do what they wish with it. Any analysis that starts with "They are making so much money!" better begin with discussing Return on Equity and Return on Sales, and end with what do you do if Exxon in a decade starts loosing money - do you give them a windfall bailout?

If you heartfelt belief is that oil companies are shafting us, is that belief based on the facts out there, or are you seeing what you want because your belief is overpowering it?

Posted at June 12, 2008 12:36 PM in response to Time Mag Sniffs At Obama's Economic Plan

I think the frustration with Obama's plans is not the new versus old thing - its that much of the plans are the traditional obfuscation of politicians who are afraid to do what makes sense..

Lets take the windfall profits tax. We did that already - 1980 to 1988. It brought in far less than projected ($80bil versus $300bil), and contributed to a decline in jobs and production in the U.S. oil industry. We even insist on calling Big Oil "Big" - we have 5 companies that pump from 6% of the world's proven reserves. Big oil is Gazprom, Pemex, Citgo, Aramco - the nationalized oil companies of foreign countries.

As for stock buybacks, companies buy back stock for 1 main reason - they have cash they can't find an acceptable return for, so they return it to their investors. Since we prohibit exploration and drilling in much of the U.S., and building a new refinery is a regulatory nightmare, what other option do they have? If they found options, they would then resell that stock to raise capital. The government can swoop in at some point and take those profits, basically cut in line front of the investors, but that will make oil companies about as popular with investors as airlines, and will lead to less $$ being available when they really need it.

If one is SERIOUS about reducing CO2 emissions, encouraging conservation, and reducing our gas consumption, propose a CARBON TAX - not this windfall profits/cap-and-trade charade.

On the retirement side, sure retirement is going up to 67 (a legacy of the LAST major SS comprimise under Reagan), America's are still living even longer.

As for most 'wonks' - most wonks support a comprimise solution - some changes to retirement age, benefits, perhaps means testing, AND and increase in the cap. If you just raise the cap - in effect, a 12.4% increase in the marginal rates of wage earners making more than $102k (placing marginal rates at that income in the 40% range) - you have a massive tax increase, one that will most likley hit wage earners in urban industrial states like Cali or NY. Do you also increase their SS benefits to match? I think the answer is no, and at that point, you expose SS as a pure senior welfare program rather than as a social insurance program.

What we want is ideas that show a governance in the NATIONAL interest, not a rehash of Great Society or Carter Energy-crisis programs that worked in some ways but failed miserably in others..

Posted at June 12, 2008 11:52 AM in response to Time Mag Sniffs At Obama's Economic Plan

The question isn't so much about Obama taking public financing - strateically, its probably best for him.

The question is about him keeping his word, when he is running as a "new type of politician". He has said pretty definitively in the past, that he thought if his opponent took public financing, he would as well. Now that that pledge looks a bit inconvenient, he's backing off it. What happens after he is elected with the dozen other campaign pledges - middle class taxes, health care mandates, Iraqi withdrawl - that are also a bit "inconvenient" to follow.

The whole "save the taxpayer money" argument is bunk - he could still abide by a $85 million limit raised from private donations, and honor his pledge while still saving the taxpayer's money.

If you are an Obama supporter, on the thought that things will be different up there, that he'll work together with both parties to govern in the national interest, then it will be somewhat sad to watch you faces drop when the luster comes off.... and this broken pledge, the political doublespeak behind it, is the first bit of tarnish..

Posted at March 10, 2008 11:32 AM in response to Why Obama Should Reject Spending Limits