why is there a salary limit on Social Security? Isn't this a regressive tax?

[jsamuel]

Taxed the same % no matter how much you make, but if you make over 95,000, nothing over that is taxed. That is an extremely regressive tax, isn't it?

[CTD]

1. I never understood the rationale behind this cap.

And I'm a CPA.

While $95K/yr is far from filthy rich, the idea that a tax STOPS at a certain level of income and ABOVE seems very regressive to me as well.

[AngryAmish]

12. This is the rationale

SS was not to be welfare. It was to be something people earned, paid into and got back after retirement. Since benefits were capped the taxes were capped.

Well, that was a load of crap. Or at least has been a load of crap for a long time.

I do not have the exact numbers right now but the average person gets what they have paid into SS in 4-5 years. If folks retired now at 65 the average life expectancy is 17.7 years. <>

So, people who retire get "their" money and live off of "our" money for 12+ years on average.

This was not a big deal when we had many more workers per retiree. However because of the demographics the Baby Boomers (the gimmie mine generation) will be living off of their children's and grandchildren's money for a long, long time.

The solution - knock back the retirement age to 70. Again, I don't have the numbers in front of me but that should solve SS problem in the long term.


(on edit - SS should tax all income but then SS would become a welfare program not an entitlement that is earned. That is fine but we have to look at things as they really are.)

[CTD]

17. Makes sense from a how-it-came-to-be perspective

But I think we'd all agree it doesn't make sense in reality today. And it effectively already is a type of elderly "welfare", so why not just embrace that status.

I'm not particularly in favor of raising the retirement age, but there should definitely be no cap.

(Edited to fix typo in subject)

[slipslidingaway]

36. Please see my reply below.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=315392&mesg_id=316270

[loyalsister]

37. Or, more realistically

we could view it as an insurance program.
You pay in and if you lose your life savings in the market there is a back up for poverty protection.
People who have not paid in receive benefits for disability insurance.

All of this is better for all, because when people have a little money to survive on, they also have some money to spend and put back into the economy.
Families don't have to go broke providing for them.
It is an insurance program we all pay into.
Not everyone actually needs it, but the idea that since people paid into it they deserve to get it back corrupts how we view solutions.
The idea is that it is simply better for all of us if fewer people live in gutter level poverty.

[B Calm]

53. I like to propose a wealth tax on the corporations that would allow us to retire at age 60.

It would be a recovery mechanism for all the benefits large businesses received at the expense of 99% of the population and for protection services provided by the US government.

[B Calm]

52. knock back the retirement age to 70. Are you kidding? They already knocked

it back for us baby boomers!

[AngryAmish]

54. Well either knock it back or have the program default

If you think folks will give 20% of their income for retirees who have already received much more than their lifetime contributions -- people will not do it. Self employment would be more popular and people will just lie about their income.

People my age (I'm 38) do not believe they will ever get SS. But we shut up and pay it because it is not really that much. But unless we have another baby boom and pronto the dough will not be there unless benefits are cut, retirement ages increased or other things done. We just have to pick the least painful way.

[B Calm]

55. Hell I thought the same thing when I was your age. Don't believe all

the right wing lies about social security. They hate SS with a passion and want to get rid of it!

[AngryAmish]

56. Look at the numbers, they don't add up

[B Calm]

59. Who's numbers? The numbers the cons give us?

[B Calm]

60. Republicans Plan to Loot Social Security.. link

http://www.new-enlightenment.com/sss1.htm

[daveskilt]

15. 95 isn't all that much anymore

Especially living in southern california. a six figure salary in socal can still mean not affording your own home or even living paycheck to paycheck (especially with student loans like me)

[BlooInBloo]

2. (shrug) You wanna try to get rich folks to pony up for something they don't need in the first place?

Be my guest.

[jsamuel]

3. I don't "need" it either and I am paying it.

[XNASA]

4. So they don't need it.....

But they get it anyway?

[BlooInBloo]

6. Don't look at me - I didn't make the laws.

[The Magistrate]

5. Yes, Sir, It Is

And removing that cap would go a long way towards removing any excuse to cry that the Social Security system needs "fixing"....

[MissB]

22. Yeah, but I'd start crying a bit.

:cry:

Just kidding. I'd probably get a little cranky for a few days in November, but then I'd be reminded of my selfishness and I'd be over it.

It really should be removed.

[Selatius]

7. If you moved the FICA cap up to 120,000 and pegged it to inflation, SoSec would be fine.

It would be even better shape if we could get a balanced budget with surpluses going again. Of course, maybe we should look at why we blow 600 billion/year on the military-industrial complex.

If you're going to make a program that serves everybody, including the rich, it might as well be a program without the FICA cap at all, and in that instance, your SoSec funding problems are over unless politicians do something stupid like divert the funds into private accounts.

[jsamuel]

14. when was it set at 95,000?

I am curious as to what that would equal to today's dollar.

[ProfessorGAC]

16. It Goes Up Every Year

The problem isn't the that it doesn't go up over time, the problem is that it's just too darn low. It went up about $2500 between '06 and '07.
The Professor

[jsamuel]

19. ah, thank you

[baby_bear]

8. The theory is that high wage earners will pay in more than they take out

...if they keep paying past a certain salary ceiling. In other words, it was an equity issue. Social Security was not meant to be means-tested, i.e., everyone pays in, everyone takes out. But if you pay in a whole lot, you still wouldn't be able to take out a commensurate amount. Thus the ceiling.

Maybe it made sense three decades ago, when there wasn't such a discrepancy between the haves and the have nots, and there wasn't so much corporate welfare and low tax rates on dividends, all of which mean the tax burdens fall to the low and middle classes. So now it makes sense to remove the ceiling on payments into Social Security.

But there is such an entrenched and strong element that want to keep the middle class down and paying all the taxes, and that element is strongly represented in Congress.

It's worth letters to your senators and representative. We all should do it, on a regular basis.

b_b

[Sammy Pepys]

9. It may be, but keep in mind...

that the benefit is also capped.

[jsamuel]

11. That much makes sense.

It doesn't exist to make people rich, but to give people a safety net.

[PsN2Wind]

10. What I consider a better question is

why are not the first $95,000 of capital gains or other non-wage income subject to the tax?

[dkofos]

13. We need to push for repeal of caps on SS.

That is the only way SS will survive!!

[lumberjack_jeff]

18. If you there's no connection between what you pay and what you get...

... then it's welfare. Social Security has wide support precisely because it is not. We all know what happens when you call something welfare - it gets destroyed.

Raise the cap? I could agree with this. Adjust the cap for inflation? Agree with this too. Eliminate the cap? I would not. Social Security is a good program, provided we don't change it's fundamental nature.

Social security is insurance. I dislike the practice of calling the premiums "taxes".

The "taxes" are regressive, but the benefits are strongly progressive.

[jsamuel]

20. can you "opt out"? and not pay in? No

that is why it is a tax. You have no choice but to pay. A premium is a choice.

[lumberjack_jeff]

25. Unless you can know with certainty that you won't get disabled...

... or retire penniless, you don't have the knowledge required to opt out.

You can't opt out of auto liability insurance either, yet my legally mandated car insurance is not called a tax.

[jsamuel]

26. yeah, but you don't have to own or drive a car

please they are not comparable. One you HAVE to pay to the government, the other you don't.

[Matariki]

31. They might not be exactly comparable but it's an attempt to point out the flaw in your comparison

Just because Social Security is mandated doesn't make it a tax. You don't have to work either - that's the way you can opt out of Social Security. And then you won't have any money in your Social Security account to collect when you're old.

[Zavulon]

39. SCOTUS ruled that it was a tax

Helvering vs. Davis: "The proceeds of both taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way."

Anyone can be denied Social Security payments for no reason. Using a farfetched but not impossible example, if the program were running out of money the powers that be could simply say "for the next five years, nobody whose SSN ends in a five or a six gets paid," there's nothing you can do.

It's a tax.

[jsamuel]

49. Thank you.

[jsamuel]

50. yeah, and if you don't work, guess what? You don't pay taxes.

like social security

I am not comparing anything. You are comparing a tax with insurance. I am calling a tax a tax.

[ieoeja]

38. So mandatory car insurance is the same as a sales tax.

You don't have to buy fill-in-the-blank. But when you do you have to pay sales tax.

You don't have to drive a car. But when you do you have to pay the insurance (so call it a tax).


Of course, if we started framing it that way all we would accomplish is creating a massive movement to get rid of mandatory insurance. That tax word gets people riled.

[originalpckelly]

42. On the other hand, politicians from both parties don't raid the insurance company's fund...

to pay for tax cuts and programs that don't work.

And you can choose to not drive a car and not have to pay car insurance.

[Matariki]

30. No, it is not a tax. Can you opt out of car insurance? Not legally.

Only mislead Reaganomic types think the option of opting out of Social Security in a good idea. Having this program is probably the difference between what we have now and whole generations of old people either unable to *ever* retire or living on the street.

[kestrel91316]

32. The Old Order Amish get to opt out, but that's because as a group they

provide for their own elderly and agree never to seek SS benefits. Some court case a couple three decades ago decided this.

[Zavulon]

40. So did Galveston, Texas.

To be honest, I wish I had lived down there when it happened. I have little chance of living to collection age and have no family which can collect on it, so to me it's just more tax.

[originalpckelly]

43. Of course there's the real problem that Bush and his friends are stealing that money...

to pay for rich people's tax cuts.

[Zavulon]

46. That's par for the course, but

I'd still be paying less down there. When people ask me how much I paid in tax last year, I always include FICA into the total.

[Greyhound]

47. That is a whole other, and very touchy, issue.

We'll just pretend you didn't bring it up.:hi::D

[MousePlayingDaffodil]

21. Look at it from the point of view of how benefits . . .

. . . under Social Security are calculated.

Basically (and this is something of a simplication, but accurate, I believe, as far as it goes), the amount of monthly benefits a person receives under Social Security are based on a formula intended to "replace" a certain percentage of that person's monthly wages averaged over the course of that person's highest 35 years of wages. On the benefits side, Social Security is "progressive," insofar as the formula that is used is designed so that persons who have lower average wages over the course of those 35 years will have a higher percentage of those wages "replaced" by the benefits they receive upon retirement than persons who had higher average wages. (Of course, the higher wage earner's Social Security benefits will still, in an absolute sense, generally be greater than that of the lower wage earner.)

Where the wage/tax "cap" comes in is here: as was noted, benefits are calculated based on a formula that seeks to "replace" a given percentage of a person's average wages over some 35-years of wage earning. At the same time, however, a person is give credit, as it were, for having earned wages in a given year only up to the specified "cap" for that year.

To give a concrete example, the wage/tax cap for 2007 is $97,500. Now, I anticipate earning nearly three times that amount in 2007, yet, if and when (that is, assuming I live that long) my Social Security benefits are calculated at the time of my retirement, I will only be given "credit" for having earned $97,500 this year. In turn, the calculation of my monthly benefit will be limited as a consequence.

Thus, when you approach the matter from the perspective of how a person's benefits are actually derived, the "cap" on taxes does have a certain logic. That is, if the Social Security system assumes -- for the purpose of calculating my benefits in the future -- that I made no more than $97,500 in 2007 (even though, as I noted, I anticipate that I will earn considerably more than that this year), why should I be assumed to earn more than $97,500 for purposes of paying Social Security payroll taxes?

Or, to look at it from the other direction, if the wage/tax cap were to be removed altogether, and I were obliged to pay payroll taxes on the entirety of my wages for 2007, shouldn't the entirety of my wages in 2007 be taken into account when calculating my benefits in the future?

Anyway, that's the basic idea.

[jsamuel]

23. thanks, it is more complicated

[Sammy Pepys]

28. Nice explanation

If you raise the cap, you flirt with having to raise benefits...and those benefit raises will end up going to the highest earners.

[ThomCat]

24. I'm sure it was a political compromise.

The rich were okay with there being a safety net for the poor, as long as only the poor and middle class really had to pay for it.

[Skink]

27. Consider senior spending.

looking at things from a retail perspective if there were no Social Security for seniors to use as discretionary spending the industry would tank.
I think a better plan would be to exempt the first 95,000 (a tax break) and then tax every penny after that. This way Bill Gates et al wouldn't be able to skate on their responsibilities.

[Matariki]

29. Because Social Security isn't a tax

[meldroc]

33. Yep. Now you know how to save Social Security.

Raise the cap, and you've got all the money needed to keep Social Security running for the foreseeable future. As posted earlier, raise it and index it to inflation. Of course, that will never happen as long as Bush is in office - wouldn't want to cause any expenses for his rich buddies, would we... :mad:

[slipslidingaway]

34. "Baby Boomers (the gimmie mine generation)

will be living off of their children's and grandchildren's money for a long, long time."

From reply #12 above.

Not quite true IMO as SS taxes were raised in the early 80's to build a reserve so when the BB generation retired this excess or 'trust fund' could be used to offset the expected decrease in revenues.

You can see the increase in the trust fund at this site, there is a 1.8 Trillion surplus in the fund as of the end of 2006. Close to ONE TRILLION of this surplus has accumulated during the current administration.

http://www.ssa.gov/OACT/ProgData/funds.html

Instead of calling the BB's the 'gimmie mine generation' we should be demanding that our representatives stop spending the trust fund that the BB's have funded for years.


snip>>

http://www.allenwsmith.com/id5.html

"...We, the American people, have been played for fools and suckers by our government over the past two decades. Every president, and most members of Congress from both political parties, have knowingly and willingly participated in major fraud against the American public for partisan political reasons. The large Social Security surpluses generated by the 1983 tax increase allowed politicians to spend massive amounts of additional money without having to suffer the consequences of raising taxes. The true size of the federal budget deficit has been masked in an effort to fool the public. For example, the true size of the 2004 on-budget deficit (excluding Social Security) is reported by the OMB as $639 billion. The Social Security surplus for 2004 is $164 billion. By subtracting the Social Security surplus from the on-budget deficit (a practice that is prohibited by the 1990 Budget Enforcement Act) they arrive at a deficit number of $475 billion. This is the number that is reported to the public which is $164 billion less than the real deficit.


The points that I am making are not newly recognized facts. The government has known what it was doing from the very beginning. We know this because the Congressional Record records the efforts of a few honest members of Congress who repeatedly battled against the fraudulent practices of their colleagues. Below are excerpts from a speech made on the Senate floor by South Carolina Senator Ernest “Fritz”Hollings on October 13, 1989:


"“We arrive at that fanciful…projection only by indulging in enough fraud and larceny and malfeasance to land an ordinary citizen in the penitentiary. Of course, the most reprehensible fraud in this great jambalaya of frauds is the systematic and total ransacking of the Social Security trust fund in order to mask the true size of the deficit. As we all know, the Social Security payroll tax has become a money machine for the U.S. Treasury, generating fantastic revenue surpluses in excess of the costs of the Social Security program. Excess Social Security tax revenues will be $65 billion in 1990 alone—boosted by yet another rise in the Social Security tax rate, slated to kick in January 1. By 1993, the annual Social Security surplus will soar to $99 billion.

The public fully supported enactment of hefty new Social Security taxes in 1983 to ensure the retirement program’s long-term solvency and credibility. The promise was that today’s huge surpluses would be set safely aside in a trust fund to provide for baby-boomer retirees in the next century.


Well, look again. The Treasury is siphoning off every dollar of the Social Security surplus to meet current operating expenses of the Government. By thus reducing the deficit, we mask the true enormity of the Federal budget crisis while creating the illusion that Congress and the administration are actually doing something about deficits..."

[originalpckelly]

44. No, the BB are the gimme mine generation.

And they have enough fucking nerve to call their children narcissists.

Just who exactly do you think voted for that fuckhead in the White House who's running deficits because of lower taxes?

:shrug:

It called robbing your children blind.

[lumberjack_jeff]

48. There are plenty of idiots in every generation.

HOWEVER, one thing can be said with certainty, it was those who were voters in 1983 who decided to tax themselves excessively (and there's a 1.8t surplus to show for it) to assure that they would not be a burden to subsequent generations.

Voters since then have supported politicians who have used this surplus to cut other federal taxes.

Workers since 1983 have done our share. We paid in to excess and it's reasonable to expect that our premiums entitle us to the benefits we paid for.

For all practical purposes, workers loaned money to the wealthy in the form of tax cuts. It's not greedy to expect repayment.

[slipslidingaway]

63. Well said and agree. n/t

[slipslidingaway]

62. We are on the tail end of the BB generation and shortly after

beginning our careers we were told that SS was in trouble, short and long term, and would not be around when it came time to retire, unless we paid substantially more to build up a trust fund.

That we did and the surplus created is almost Two Trillion dollars according to the SS site.

Now once again we hear that SS is in trouble because of all the BB's, we knew this back in the early 80's and paid extra to make sure there would be enough money in the system. What happened to the trust fund? Bush now calls the notes nothing but pieces of paper and scares the next generation into believing that we have not paid enough.

If you want to point to people robbing their children blind as far as SS is concerened it might be more accurate to point to the generation before us, my parents and aunt and uncles who are still collecting. Even then, and at least among my family, they have all helped their children because they are collecting SS in addition to their pensions.

Pointing the finger at any particular generation is wrong IMO when we should be pointing the finger at our government officials who have transferred wealth from the poor and middle class to the wealthy.

[AngryAmish]

51. SS taxes were raised in the 80s

And age limits raised (from 65 to 67 which will be kicking in soon). That said, the life expectancy of the average retiree is much longer than their lifetime contributions. Boomers will not raise their own taxes. They were not in charge in 83 (Rosty, Tip and Reagan weren't Boomers).

SS is not lost yet. There is a huuge surplus and will be for some time (and loaning the surplus to the US gov't is smarter thing to do than just let it sit in a vault for many reasons). The day of reckoning is still fairly far off.

Now Medicare is another kettle of fish altogether. That is the big one. Cheers.

[slipslidingaway]

64. There is a hugh surplus but only on paper and almost half of

that surplus was generated during this administration. The real problem is that the younger generation is not being told the whole truth.

[WinkyDink]

58. Say what?? It's the "Greatest Generation" that's living off SS they hardly contributed to.

[B Calm]

61. No kidding! My dad at age 90 is still drawing it. Baby Boomers

paid his SS.

[slipslidingaway]

65. See my reply above.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=315392&mesg_id=320343

We are on the tail end of the BB generation and shortly after beginning our careers we were told that SS was in trouble, short and long term, and would not be around when it came time to retire, unless we paid substantially more to build up a trust fund.

That we did and the surplus created is almost Two Trillion dollars according to the SS site.

Now once again we hear that SS is in trouble because of all the BB's, we knew this back in the early 80's and paid extra to make sure there would be enough money in the system. What happened to the trust fund? Bush now calls the notes nothing but pieces of paper and scares the next generation into believing that we have not paid enough.

If you want to point to people robbing their children blind as far as SS is concerened it might be more accurate to point to the generation before us, my parents and aunt and uncles who are still collecting. Even then, and at least among my family, they have all helped their children because they are collecting SS in addition to their pensions.

Pointing the finger at any particular generation is wrong IMO when we should be pointing the finger at our government officials who have transferred wealth from the poor and middle class to the wealthy.

[rocktivity]

35. Eliminate the cap altogether, and we not only eliminate the problem

We can all pay a lower rate.

:headbang:
rocknation

[originalpckelly]

41. Why yes it is a regressive tax. And billionaires who make money off investment...

don't even pay the tax.

And guess what? Both parties are stealing money from social security in order to pay for the deficits. More recently, Bush is stealing from little old ladies and men to pay for his tax cuts for the rich.

[Greyhound]

45. Absolutely, and simply removing it would ensure SS solvency until,

IIRC 2047. But that would be a simple solution that costs nearly nothing, and so is, completely unacceptable, politically.

[WinkyDink]

57. It's THE MOST regressive tax! Caps should be from the top DOWN.