It's a mixture of progressive & regressive. Payroll taxes muck things up because what was originally supposed to a limited retirement
supplement from a "trust fund" payed by limited contributions. Of course, it isn't a trust fund at all.
It's progressive up to a certain point, until one is rich enough and then it becomes extremely regressive. If one owns tons of stocks, bonds, partnerships, and certain other investments, one will pay little in federal taxes.
If you remove the caps, would those who pay more in get proportionately more in benefits, or is it just an add-on income tax?
No, they wouldn't get more. They'd be paying the same percentage as someone in a lower bracket rather than a smaller percentage. Having them pay a slightly higher percentage would be reasonable too, but social security isn't as unbalanced as the other things.
That's how progressive taxation works. Wealthier people end up putting more into the system than they get in return, and the least fortunate end up putting less into the system than they get return. It stabilizes the system, helps ensure everyone a reasonable degree of health and dignity, and still lets wealthy people maintain and build wealth.
With capital gains tax, we can pay tax when there is no real economic gain, but rather a dollar gain due to reduction in the value of a dollar.
Would you index the tax for inflation, so it's only on real gain instead of taxing currency dilution?
I answered this question before in our previous debate. No, I would not index it for inflation.
Then why not scrap the SS tax & just add its percentage onto the income tax rates?
The precise implementation of taxation is of little concern to me as long as it is a truly progressive of taxation- the details can be worked out by people trying to balance the budget.
Offhand, I'd suggest that keeping taxes separate may be helpful. A social security tax, a medicare tax, a
defense tax (so people can see how much money they are paying to maintain 50% of the world's defense spending with 5% of the population), and a consumer tax (basically the remainder for all the consumer protection, and various miscellaneous government services). This way, individual aspects can be appropriately balanced for revenue/spending, to streamline debates. But like I said, the precise implementation is of little concern to me as long as there is a reasonable degree of progressive taxation and the budget is balanced with the appropriate government services.
"Super-low"? How much was the rate reduction of the Bush tax cuts?
Engyo posted an appropriate chart. The income tax reduction began occurring in the decades previous to Bush, and he merely continued the trend.
Bu the key thing is that Bush's tax cuts were minor for income, and
major for dividends and to some extent, capital gains. Dividend tax for the highest tax bracket is only 15% now, which is how someone like Warren Buffett pays a lower tax percentage than his secretary. When middle class people hold stock, they typically do so through a tax-advantaged account anyway (like 401k, Roth IRA, etc), and income from dividends comes to a fairly small total of their overall earnings. So any reductions in dividend tax mean little to them. But for the top 10% and especially the top 1%, where people hold millions in stock and other investments, cutting these specific investments
drastically reduces their tax rate. That's why we have the illusion of progressive taxation rather than actual progressive taxation- the income tax is progressive but the tax on
real holdings is regressive. The current tax brackets (with perhaps one more for super-high income earners) wouldn't be so bad if the income tax was actually what people were paying on their
real income.