Jane the Actuary
It’s the opportunity cost!
View all posts by Jane the Actuary
Well if you don’t want to raise the cap how about making the govt pay back the 3 trillion it has borrowed from social security?
In addition to removing the SS earnings cap why not exclude those individuals who earn over 100k a year from receiving any social Security insurance?
Wrong…. again people forget history. So you will have the hard working higher earner at the mercy of Wall Street…just ask all the people who were ready to retire right before the tech crash… then right before the housing crash.
FDR put Social Security into place after the 1929 crash so nobody would be left evicted and eating cat food if there is a market crash, or greeting in Walmart when just 6 months before that, they were expecting to be someplace warm and finally relaxing.
..and btw , you “cap removers”, FDR said we’d get everything back that we put in. We only pay on a certain portion of income because we only GET benefits based on that amount contributed.
Payroll taxes are on people who have to get up at 5-6am and go to work. Completely scrapping the FDR intention of Social Security, taxes the hard manual/mental labor and lack of free/sleep time the worker puts out….
Removing the cap and not providing benefits based on the new amount collected ( or providing no benefits at all as you suggest), is taxation without representation, and completely scraps the Social Security plan turning it into a mob/ pitchfork driven theft/grab off of fellow citizens. They might just fight back…. there IS a Second Amendment.
if it’s the “opportunity cost” I say let’s take advantage of the opportunity and remove the cap at once…
invest in large marijuana grows and reschedule the drug and the tax revenues should be enough to continue social security as well as fund school systems nation wide. Maybe buy MMJ from mexico and let that country become financially independant and flourish.
This is a proposal to make social security solvent. Your argument against the proposal is that if we come up with the money to make social security solvent, we might want to spend the money on different things instead?
When you go to the grocery store, do you stand in an aisle for 15 minutes, blank-faced, before you realize that you could be spending that time at a doctor, or watching a movie, or writing asinine propaganda to support the interests of the wealthy, before you leave without making a single purchase?
We’ve lost our main wage earners. Now we widows have to support our families on one salary, making sure we don’t go over 17k or we are penalized. They want welfare people to work; we work and are penalized by having to give back what we worked for an need to raise a family, on top of our husbands being dead.
I think a lot of people miss the fact that the majority of Americans will always be taxed at 100%. I am not going to even talk about Trumps tax reform and SALT deductions right now, because that’s fair. There are a lot of people who choose to live in cities, and make a lot higher salary, which just happens to give them a tax cut because they make over the cap. Honestly, it should be removed, or either stop collecting social security and give everyone a 401k account of their own. Also, a lot of people will realize the scam SS is, as you pay federal tax dollars on social security like it is yours. As my democratic Aunt found out when her ex passed away, not one dime went to their son who was in college. NADA, it is a social pool of money, and you are taxed on it not only as you earn it, but also as you collect it now, thanks Reagan, and Clinton!
Your primary argument seems to be that removing the cap would compel the very rich to subsidize lower income wage earners. Middle class income earners are already clearly subsidizing low income earners; it is just cleverly hidden.
Low income retirees get a benefit equal to 90% of their average indexed monthly pre-retirement income. Above indexed earnings of $896/month, that rate drops steadily up to total indexed earnings of $5399, where the retirement benefit drops to just 42% of the pre-retirement earnings. After $5399 to the maximum (currently $10,725/mo), the percentage drops from the 42% level down to just 28% of their pre-retirement income.
Those at or near the maximum Social Security cap are clearly progressively subsidizing those toward the lower end, The percentage of payroll tax paid is level at 6.2% across all income levels…up to the cap, where it goes to zero. As a result, in the Social Security arena the higher the income the higher the subsidy is, until you reach the income cap of $128,700. The subsidy is subtle and cleverly hidden, but it is clearly there.
However, from the cap on the percentage of income paid to subsidize lower-income workers’ retirement drops from 6.2% toward 0%, depending on how high the income goes. For example, an individual making $1,000,000/year would only pay 0.8% (6.2% of the first $128,700, or a piddling $7.980 [to them] ) of their income into SSA…but still becomes eligible for exactly the same benefit at retirement as the stiff who was consistently at the cap and dutifully paid 6.2% for 30 years.
SSA is essentially a flat income tax solely dedicated to paying out retirement and disability benefits. That is not a bad thing; old and disabled people need income. Other countries recognize this and provide it in some way. How they pay for these benefits is irrelevant. SSA is the imperfect system we have in the US. However that taxation algorithm allows no deductions of any kind on incomes up to $128,700, and a 100% exemption on all income above that amount.
If you cannot see how blatantly inequitable this system is you are blind.
Hi Jane. Interesting discussion. I have always wondered why unearned income, most notably meney made in the stock market is not subject to FICA. Some folks get most of their income that way. And on a related topic, i wonder why money made in stocks should be taxed at a lower rate than earned income. Now I have heard the rationale being that people “taking risks” by investing in the market should be rewarded and incentivized by paying a low tax rate. But i would contend that starting one’s own business involves taking a risk, just as much. If i start a restaurant or a clothing store or a software company, i run the real risk of going out of business and losing everything yet, i am paying a higher tax than the hedge fund manager or the big stockholder.And even if i work for a company, in today’s economy. there is a real risk that i can be laid off or my company will go under. Thanks for listening!
Social Security may have been ‘sold’ as insurance but it never has been anything but a tax. Speaking as a neo-Classical economist, I suggest that ‘uncapping’ FICA would be the least intrusive way to solve the SS crisis. Since the untaxed portion of FICA hits most people very late in the year, it is ‘windfall’ income and not part of what Milton Friedman called, “Permanent Income”. His thesis is that such income is like ‘wealth’ it has no direct marginal economic effect- good or bad. To me, this suggests the taxes raised by ‘uncapping’ FICA would be free of adverse consumer or investment effects and would solve practically all of SS’s financial issues.
As it is, the FICA tax is one of the most regressive and harmful taxes ever invented (maybe the ‘salt’ and ‘chimney taxes were worse but…). I have been arguing with my Ph. D daughter that is ought to be an easy fix- even for many Republicans but she says ‘no, would never pass’. My response is ‘maybe’ but a simple repeal of the FICA cap has not even been PROPOSED- the ones you cite are more complex and ‘socialist’, my is a simple one of equity- a ‘flat’ tax concept.
I lack the investigative resources you have but has a simple ‘Repeal of the FICA cap’ been proposed by any legislator?
I don’t understand the argument that removing or greatly increasing the cap would not improve the sustainability of Social Security, assuming that benefit calculations and tax on social security income do not change? Removing the cap would increase “contributions”, and if the other variables don’t (excluding COLA), I would think it would improve sustainability. Also, if your benefit in calculated on your earnings up to a maximym benefit of $2,861, and tax on up to 85% of benefits paid, how is it a subsidy?
This is why the caps on earned unearned income should be removed.
Social Security is an entitlement program no different than food stamps. The money that todays elderly invested was given to a previous generation long ago. It is unfortunate, but this is reality. Because of their foolishness the boomers expect the millenials to give them our money, when the writing is already on the wall and Social security will be bankrupt in 14 years. These boomers are entitled to NOTHING, and their social security benefits should be stopped immediately.
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