Social Security

Social Security: The Rich Are Already Paying Their Fair Share – now what?

Fixing Social Security, to make is sustainable, should involve cross generational changes (meaning the full burden does not fall solely on younger working Americans) and we should seek to raise the contribution for employers as in general they have abandoned support for retirees.

After that is accomplished, then let’s talk about the cost and method of improvements we want to pay for.

When we proceed, two considerations should be kept in mind.

  • Don’t turn the program into a general fund welfare plan
  • Decide on a reasonable income replacement target. That means what percentage of a workers last years earnings should be replaced by Social Security?

From the Motley Fool

Unpopular opinion alert: The rich are already paying their fair share Although this may sound like a perfectly logical solution, I’m going to offer up and defend a highly unpopular opinion — namely, that the rich are already paying their fair share into Social Security. 

While I don’t deny that the percentage of earned income “escaping” the payroll tax has increased in recent decades, there are two factors that should make lawmakers hesitant to approach fixing Social Security as a “tax-the-rich” strategy. To begin with, there’s a reason the payroll tax cap exists in the first place; it isn’t just plucked out of the air by the Social Security Administration each year.

Rather, the maximum taxable earnings cap exists because there’s also a cap on the amount retired workers can be paid each month at full retirement age ($2,861 in 2019). This means that it doesn’t matter whether you earned an average of $150,000 a year throughout your life or $10 million a year, the most you could be paid by Social Security in 2019 at full retirement age is $2,861 per month.

The payroll tax cap exists because a maximum retired worker benefit amount also exists. The second factor to consider is that what workers put into the program isn’t necessarily what they get out of the program — and I’ll lean on an analysis from Urban Institute to prove it.

Source: Social Security: The Rich Are Already Paying Their Fair Share

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Categories: Social Security

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2 replies »

  1. I’ll second pretty much everything BenefitJack had to say in his comment.

    I’d also add emphasis on the fact that up to 85% of Social Security income is taxable and taxed. Given that Social Security income was never intended to be any more than 30%-50% of a retiree’s income, that would indicate that even SS recipients with half the maximum monthly payout ($1,430/month) AND any other supplementing retirement income (IRA, pension, job, investments, etc.) are going to get stuck paying taxes on those other supplementing sources AS WELL AS their Social Security income. Why is our beloved Government NOT routing those tax revenues directly attributable to Social Security income BACK INTO the Social Security “Trust Fund”????

    In my own case, just this year, I’ll pay an (approximate) $570 in Fed taxes – solely attributable to the tax on my SS income. Simply because I followed the “rules” and provided for my retirement income in addition to SS. And my SS income is nowhere near the max discussed here. I don’t mind paying it. But I do mind the Fed Government NOT routing that portion back into the Social Security “Trust Fund” to help address its solvency. Instead, the Fed Government routes it into general fund and then begins harping on finding new and increasing sources of tax revenue to address their SS accountancy problem. I’m not impressed.

    So, AFTER the Fed Gov decides to route the tax proceeds directly attributable to the taxes it collects ON Social Security benefits BACK INTO the Social Security “Trust Fund”, I’ll be willing to consider other remedies to its solvency. But not until then!

    I will also forward “kudos” to the “Motley Fool” piece cited here. I did not know that the “logic” underlying the (SS) taxable income cap was the maximum SS monthly payment cap. Perhaps that also be revisited – again AFTER the Fed Gov routes its current tax revenues appropriately.

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  2. Rich = wealth

    Rich ≠ income

    Income ≠ wages

    Yes, someone who is age 66 today, whose only income was wages, who worked 50 years since turning age 16 (started in 1969), who had a good job and earned $8,000 in 1969, whose wages grew to $23,000 by 1979, to $48,000/year by 1989, to $73,000/year by 1999, to $107,000/year by 2009, and to $129,000 in 2019. That individual will likely receive a maximum social security benefit of about $2,860/month, $34,320/year or about 28% of final earnings. Of course, that same individual could have received the maximum benefit with the same earnings history, had she not worked a day prior to 1984. Either way, however, she is not necessarily rich. She may have spent everything – family, high cost of living, illness, etc. And, that’s for someone who earned the maximum wage Social Security considers. For example, take that earnings history and put that person in New York City, Chicago, Los Angeles, Seattle, etc. with a family of four. They did OK, but rich?

    So, keeping that in mind, who among you has consistently worked the last 50 years, besides me? I am sure some of you have. Do you bemoan me my Social Security benefit – after paying in, what would have accrued to be millions of dollars in taxes (6% earnings) over that 50 year span? You begrudge me my $34,000 a year? 85% of that will be taxed as well, so the taxes won’t end anytime soon. Assuming I live to age 85 (my father died at age 53, my mom at age 76), we’re talking about a situation where had I invested those tax dollars, earned 6%, took some to buy life insurance and some more to buy disability coverage, where I am not even getting back a penny of my taxes … yes, $34,000/year would be less than the investment returns had every dollar in excess of insurance premiums been invested and earned in excess of 6% (author’s calculations).

    And, that’s for someone who no one would consider to be rich, wealthy.

    Idiots like Bernie and Warren want to turn this into a welfare program, buying your votes. He encourages you to think of how great it would be – You want the best benefits Someone Else’s taxes will buy. Or, as New York City Mayor DiBlasio says, “there is plenty of money, it is just in the wrong people’s hands.”

    Well, to paraphrase Martin Niemöller and his lament regarding the Nazi’s in WWII:

    First they came for the capitalists, and I did not speak out—because I was not a capitalist, .

    Then they came for the billionaires and millionaires, and I did not speak out— because I was not one of them,

    Then they came for those with good incomes, including the middle class, the executives, the managers, the trade unionists, and I did not speak out – because I was not part of that group either.

    Then they came for me—and there was no one left to speak for me.

    We already have a funding deficit for Social Security, where the trust fund will be exhausted by 2032 – 2034 (that’s 15 years folks), a deficit for Hospital Insurance, Medicare Trust Fund that will be exhausted in 6 years, and we are already funding Medicare Part B (Physician) and Medicare Part D (Dope) with general revenue taxes (imposed on the ~50% of individuals who pay income taxes). And all of Medicaid is funded with taxes for the low income seniors who are dual eligible.

    Given the Medicare formula to qualify for free Hospital Insurance, and the regressive to income benefits under Social Security, how Medicare Part B, Part D and Medicaid are funded, we already have the “socialism” of Social Security.

    Remember that the only thing that is more regressive than social security and Medicare taxes are the benefits they fund.

    You can quote me.

    BenefitJack

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