Misleading information about Social Security abounds. Much of it is caused by political rhetoric that seeks to create the myth that there are easy solutions to every problem if only we raise taxes on somebody else … whomever the politician decides to label wealthy.
Read the letter to the editor below.
Raising the ceiling on taxable wages DOES NOT provide long-term solvency‼️ That is simply a fact. Taxing all earnings would fill only 41% of Social Security’s long-term deficit.
Why should a person earning $100,000 pay taxes on 100% of income while the person earning $300,000 pay taxes on 40%? Well perhaps it’s because the person earning $100,000 has his Social Security benefit calculated on $100,000 while the person earning $300,000 has her benefit calculated on $118,500 (or whatever the maximum wage base is). It should also be noted that the person earning $300,000 pays a higher Medicare tax on all earnings plus a tax on investments and pays double or more the Part B premium in retirement while, of course receiving the same benefits. SEE NOTE BELOW
In addition, the formula for Social Security benefits skews a higher benefit toward lower-income beneficiaries. The following chart is based on the Social Security Quick Calculator and the previous earnings pattern the calculator assumes. The Social Security benefit for the person earning $300,000 is higher not because they earn $300,000, but because it is assumed they earned the maximum taxable wage for many years. As you can see, higher income earners are responsible for generating a higher percentage of their own retirement income and rightly so.
Social Security was never intended to be a welfare system for the elderly, but current political rhetoric is convincing more and more people they are entitled to whatever they can glean from others. Why is raising the taxable wage, but not the wages used to calculate a benefit, fair? Fair to whom?
Politicians heeding the decades of warnings from the Social Security Trustees and others and gradually adjusting taxes and benefits to a sustainable level would have been fair‼️
Instead these politicians have spent years lying about and ignoring the state of Social Security in fear of the AARP and voting seniors. They have succeeding in convincing Americans that what is a “logical fix” making “perfect sense” is higher taxes on a few Americans and turning Social Security into another welfare program. 21st century Americans have a sense of fairness that turns them into dependents of government.
Why don’t concerned Americans throw every pandering politician out of office?
To the Editor:
Finally, thank you very much for putting the most fair and logical “fix” for Social Security into print (“Social Security in an Election Year,” editorial, Jan. 3).
Raising the ceiling on wages subject to Social Security deductions is long overdue. The current ceiling is just $118,500. Raising it, say, to $250,000 or $300,000 a year would provide long-term solvency.
Why should a person earning $100,000 a year have 100 percent of his wages subject to Social Security deductions, while a person earning $300,000 has just 40 percent of his wages subject to the deduction? It makes no sense whatsoever, and applying the deduction to a higher wage ceiling would not be an onerous burden on the higher wage earner.
Rather than make people work until they are 70 or reduce Social Security benefits or privatize the system, raising the wage ceiling makes perfect sense.
JAY THOMAS WATSON
Source: New York Times 12-7-16
NOTE: There are two ways the Medicare taxes affect upper-income people. First, a 3.8% Medicare surtax is levied on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) above $200,000 for individuals, $250,000 for couples filing jointly, and $125,000 for spouses filing separately.Second, wages above $200,000 (individuals), $250,000 (joint filers), and $125,000 (spouses filing separately) will be subject to higher payroll taxes. Let’s review each provision in detail.
Medicare payroll tax on earned income
The Medicare payroll tax is 2.9%. It applies only to earned income, which is wages you are paid by an employer, plus tips. You’re responsible for 1.45% of the tax, and it’s deducted automatically from your paycheck. Your employer pays the other 1.45%.
High-wage earners will owe an additional 0.9% on earned income above the thresholds mentioned above. So, for example, if you are an individual filer whose income is $225,000, you will pay a 1.45% Medicare tax on the first $200,000, then 2.35% (1.45% plus 0.9%) on the next $25,000. Your employer is required to withhold the extra 0.9% once your wages pass the $200,000 threshold for individuals.