With the usual caveats about how stupid AIntelligence is, here’s what the Googlemind says:
No, Social Security payments are not included in the calculation of GDP because they are considered "transfer payments," which means they are simply a redistribution of existing money and do not represent the production of new goods or services within the economy; therefore, they are not counted as part of a nation's economic output as measured by GDP
AI got it right. Insurance is the transfer of risk to a party that can bear it.
What Is Transfer of Risk?
A transfer of risk is a business agreement in which one party pays another to take responsibility for mitigating specific losses that may or may not occur. This is the underlying tenet of the insurance industry.
https://www.investopedia.com/terms/t/transferofrisk.asp
This is also the reason why insurance should not be used as pre-paid medicine, Insurance should only cover “Major Medical” what the insured cannot afford to pay. Ordinary healthcare should be included in the regular budget.
The Captain
The benefit to it being included however is hopefully people do regular checkups more frequently, catch things faster. For example I had a regular 6-month checkup that normally finds nothing at all wrong and you feel you wasted your time. This time it showed a heart murmur. This sent me to a cardiologist, then to a hear surgeon. A failing valve was caught early, before it turned into an emergency, with a well planned and non-hurried surgery. In the words of my cardiologist when valves fail they very quickly turn into emergencies, or even turn fatal.
I’m not sure what you mean by this. Can you show us where on a typical 1040 form you would subtract the 6.2% you pay into social security (via employer deductions each paycheck) from your gross income?
(The employer portion, their 6.2% is indeed pre-tax, but the employee portion, your 6.2%, is not.)
You don’t. Your employer does, on your W2.
Here’s an example of a typical W-2, you will see that total wages are $43,000, and you will further see that FICA was withheld from the $43,000, BUT you will also see that what is to be reported as wages on the 1040 form (line 1a) is $40,000. That’s because $3,000 was contributed into some sort of tax-deferred account (probably a 401k or similar). You know that because box 12a is marked “D” and has an amount of $3,000 in it. The amount of social security tax paid is $2,666.00 which is exactly 6.2% of $43,000. Since you are claiming that the amount the employee has paid into social security “isn’t taxed”, and that it is “done on the W-2”, can you show us where exactly this W-2 it is “done”. Of you can post an example of a different W-2 and show where it is “done”.
@aj485 Can you comment? I’m pretty sure that the employee portion of FICA (the 6.2% that the employee pays) is NOT excluded from taxable income.
Neither the SS tax nor the Medicare tax is excluded from taxable income. As you can see in Box 3 and box 5, the full $43,000 in income is included when calculating the SS and Medicare taxes.
Box 1 shows taxable income - what goes onto your 1040 as taxable. The reason that box 1 only includes $40,000 is not because it’s adjusted for SS and Medicare taxes ($2,666 + $623.50 = $3,289.50, not $3,000). It’s because box 12a shows a contribution of $3000 to a pre-tax 401(k).
So SS and Medicare taxes that the employee pays are also being taxed as the employee’s income.
AJ
However I can understand why someone might be confused about this issue. Back when they began taxing social security benefits, one of the justifications they used was - “because the 6.2% employer portion was never taxed”. And that was how they came up with the “half of social security benefits should be taxed”. Then later, when nobody was watching, in one of their various tinkering bills, they raised it to 85% taxed for “high income” (>$34k/$44k LOL).
That was based on looking at Social Security as if it were an investment. If you buy a stock and in the future you get more than your cost out, you pay tax on that gain. So why should all of your half come back tax free?
Not that I agree with that rationale, but that was the thinking behind it.
As to the dollar thresholds, those were set 30 or 40 years ago and have never been indexed for inflation. They weren’t terrible at that time. But they are ridiculously low today.
I’m sure Congress will get right on fixing this problem for ordinary taxpayers.
—Peter
The irrationality of how capital gains are taxed is a whole other topic of conversation. If you buy a stock for $100 and sell if for $200 two or three years later, after inflation of 10% total, you are taxed at 0%/15%/20%/23.8% of the $100 gain. But if you buy a stock for $100 and sell if for $200 thirty years later, after inflation of 100+%, you are still taxed at 0%/15%/20%/23.8% of the $100 “gain”. The former case takes a portion of your real gain in taxes. The latter case changes your real gain of zero into a real loss.
At some point Venezuela adjusted capital gains taxes by allowing to increase the cost basis by an annual rate set by the central bank.
The Captain
