The fact is that eliminating the cap on taxable wages does not solve the long-term funding problem facing Social Security, but that does not mean that politicians and liberal organizations have not convinced many (especially older) Americans otherwise.
As you can see below, only 6% of American workers would pay more if the cap were eliminated. Do we truly believe it fair that 6% of workers should carry the burden for all workers by subsidizing their retirement? Is that the way we want America to work? That’s never how Social Security was supposed to work.
Proposals for this type of change reflect the cowardly manner in which politicians approach the broad-based problems facing society; don’t tell people the truth, don’t share responsibility, ignore problems until they become a crisis and find the easy way out
And consider this. A worker earning $118,000 (the current cap) pays the maximum tax and receives the maximum benefit and so does a spouse. If the cap is eliminated, an individual earns $218,000 and pays taxes on an extra $100,000 but his and his spouse’s benefit is exactly the same as the couple with an income of $118,000. Is that your definition of fair? [example assumes both individuals always earned the maximum taxable wage]. We are not talking about progressive income taxes, we are talking about funding a pension relative to ones income up to a set limit.
What proponents don’t often mention is that to save significant money for the SS trust, while the taxable wage is uncapped, the eventual benefit is calculated on the old wage cap. When you consider the relationship between the taxable wage and the benefit calculation, the argument that higher income workers pay a lower tax rate is silly. In fact, the benefit calculation already skews a higher monthly benefit to lower-income workers.
I love how special interests manipulate facts and mislead susceptible Americans. The progressive left, which often presents its views in compassionate ways, is especially adept at this skill. Look at the phrases I placed in red.
If the benefit and the taxes are based on the same dollar amount as they are, considering ones total income in calculating a tax rate is irrelevant. Similarly, paying the tax on one-eighth of earnings means nothing other than as a rallying cry for those who want to turn Social Security into welfare rather than honestly solving the solvency problem.
Finally, despite the facts, Sen Sanders and company tell Americans that eliminating the cap will allow for “expanded” benefits. I wish I could use the same money twice😆
Many Americans are not aware that, because there’s a cap on the amount of earnings that are subject to Social Security payroll tax, the highest-income earners among us pay a lower rate than the rest of us.
For 2016, that cap is set at $118,500 per year, the same level as in 2015. (In almost all prior years, the cap increased annually with inflation, but lower gas prices were a major factor in holding the relevant inflation measure flat last year.) That means that people who make a quarter of a million dollars per year pay this tax on less than half of their wages. Those who make a million dollars annually pay the tax on less than one-eighth of their earnings. In other words, the vast majority of us who make less than the cap pay a Social Security tax rate that’s more than eight times that of millionaires.
In 2015, several members of Congress introduced bills to shore up Social Security’s finances by raising the tax rate on the highest-wage earners, bringing their rate either closer to or equal to that paid by the rest of us.
The proposals that remove the payroll tax cap entirely are estimated by Social Security’s Chief Actuary to reduce the program’s long-term funding shortfall between 70 and 80 percent.
Other bills apply the tax to earnings above $250,000 or $400,000 per year, which are estimated to eliminate anywhere between one-ninth and four-fifths of the gap, depending on how they are phased in. The figure below, and the tables available at the bottom, update prior CEPR issue briefs to show how many workers would be affected by eliminating or raising the cap. It turns out that the top 6.3 percent of earners (less than 1 in 15) would pay more if the cap were scrapped. If the tax were applied only to income above $250,000 or $400,000 per year, then only the top 1.5 percent (1 in 67) and 0.6 percent (1 in 167), respectively, would pay more.
NOTE: Being retired for six years, I have no personal stake in this issue except from the perspective of fairness and the changing ideology of our Country.