The New York Times editorial board writes in part July 21:
… Meanwhile, the tax burden on everyone else has increased. One reason is the gradual rise of federal payroll taxation, the flat-rate income tax that provides funding for Social Security and Medicare. The Social Security tax is particularly regressive because it applies only to income up to $132,900…
Wait a minute, the Social Security tax is not regressive, not when you consider its purpose as a social insurance program and its intended funding method. Taxing up to $132,900 as it is today provides a benefit based on no more than that level of earnings. The program was designed that way; a benefit based on years of work and relative income and funded accordingly.
Social Security was never intended to be a welfare program (although in some measure it is). The problem is not the way the tax is structured, but the way benefits are structured. It’s not millionaires and billionaires we are talking about taxing more, but upper middle class individuals.
When you talk about fairness look at how spousal benefits work.
In addition, when the benefit is calculated, a higher benefit based on percent of covered earnings results for the people who paid the least in taxes. For example:
The first $926 of indexed earnings are multiplied by 90% over $926 by 32% and over $5,583 by 15%. The higher one’s income the lower replacement percentage Social Security will provide, even within the taxable wage base. And, of course total income determines the taxability of Social Security benefits.
Now as for Medicare, all earnings are taxed, yes at a fixed rate, but let’s look closer. Earnings include money a person may never receive. All deferred compensation is taxed even before it is received. Take my example which is modest by comparison to many. A portion of my pension is considered non-qualified deferred compensation, that is it can’t come from a trust and is not guaranteed. When I retired I was required to write a check for Medicare tax on the expected future value of that pension. In my case I owed $16,500. Highly compensated CEOs, etc will pay considerably more. I once had to ask a retiring CEO for $55,000. There is no guaranteed the retiree will even collect the full compensation value on which they were taxed.
Then there are Medicare premiums. The standard premium is $135.50, but based on income it can be $460.50 plus additional for Part D as well.
Hey, I’m not asking you to shed a tear for higher income Americans, just to recognize that in many different ways they do pay their fair share, certainly including Social Security and Medicare.