Should the Social Security Tax Cap Go Away?

[FreakinDJ]

Should the Social Security Tax Cap Go Away?

As Congress and government budget officials work on making cuts, there's a proposal floating around to scrap the cap on payroll taxes that fund Social Security.

Right now, after you make your $106,800th dollar, you're in the clear. Should the cap go away? Share

Should the cap on payroll taxes that fund Social Security go away?

Yes 72%

No 28%

http://www.cnbc.com/id/40430535

[mmonk]

1. Yes.

It's time to quit fluffing the pillows of the rich.

[L0oniX]

2. No cap!

[drm604]

3. Yes!

:kick:

[safeinOhio]

It's freaking backwards.

The cap should be at the low end, not the high end.

[mmonk]

7. +1

[Hangingon]

14. How would that work?

[Ganja Ninja]

20. You wouldn't start paying in until you've made a certain amount.

As opposed to what we have now where you pay up to a certain amount of income.

[FiveGoodMen]

60. That's a VERY good point.

I've never heard that or thought of it myself.

[Romulox]

4. Yes. The arguments against are absurd.

"It will ANGER the rich!!!!" :scared:
"If the rich pay the same percentage of their income into SS that the rest of us, it will be WELFARE!" :eyes:

[kentuck]

5. Absolutely!

IF they extend the taxcuts on those making up to $250K, they will be paying less total taxes than those making $106K and below.

[mediaman007]

6. Yes!

Or they can forfeit their claims to Social Security years, since they have the opportunity to take that untaxed money and invest in private retirement accounts. (Social Security is chump change for them anyway.)

[hayu_lol]

8. All...repeat...all income needs to carry the burden of our SS/Medicare costs...

that includes those multi-million dollar bonuses paid to the CEOs in the financial industry.

Of course remove the cap....

[mopinko]

9. no

unless we are going to turn it into a welfare program instead of an insurance program, i am opposed to letting rich people buy a bigger insurance plan than the basic plan that is available to all americans.

if you want to enhance revenues, let lower wage workers voluntarily pay the max, so that they will get the max payment, and the max disability/survivors benefits. just have a box to check that you would like 1/52 of the max premium deducted from your paycheck. you could make corporations match that like we do now, or not.

do not eliminate the cap. teddy kennedy fought this with all his heart. it is just wrong, and will be the first step to the kind of annual wrangling that we see over medicare. people are proud that they are not getting handouts, but something that they paid into and earned.

[Romulox]

17. Using the term "welfare" as a pejorative euphemism for progressive taxation

is troubling... :hi:

[lumberjack_jeff]

25. He has a point.

Social Security is insurance. You pay the premiums and if you qualify for the conditions of the policy, you get a benefit.

Eliminating the cap without raising the benefits for the people who paid more would arguably be welfare.

Given the range of things being considered under the excuse of eliminating the deficit, it may be appropriate, but there's a risk.

[mopinko]

44. it's not taxation. it's insurance.

we fuck it up at our peril.

[Romulox]

52. What is it as to younger workers for whom full payouts will not be possible without a change?

:shrug:

[Hannah Bell]

47. except that's not the case, but nice spin.

[Warren Stupidity]

10. no

SS routinely runs a surplus. Why increase the SS payroll tax at all? If and when SS is actually in danger of not being able to meet benefit payouts, that would be a good time to adjust the tax.

[Nye Bevan]

11. The key question that people tend to ignore when debating this

If you remove the tax cap do you also remove the benefits cap?

If so, millionaires will eventually end up receiving hundreds of thousands of dollars a year from Social Security.

If not, you are effectively turning Social Security into a means-tested welfare program, which will severely undermine the broad support that the program currently has.

[FreakinDJ]

12. Millionares file for Benefits too

Don't think they don't

They'll add that $2250 per month to the pot and laugh all the way to the bank

[Nye Bevan]

13. Correct. But the maximum benefit is currently about $2300 per month.

If the tax cap and benefits cap are removed, millionaires could end up getting $20,000 per month or even $200,000 per month in Social Security, which I don't think is the outcome that many of the "remove the cap" advocates have in mind.

[FreakinDJ]

15. Benefits only increase by ACOLA as per law

Of course no one said any thing about Corporate or Business Taxes being subjected to SSI which is how most Millionaires file their annual taxes

So actually they still wouldn't be paying into SSI

[MousePlayingDaffodil]

18. "If you remove the tax cap do you also remove the benefits cap?"

As it happens, the so-called Social Security "benefits cap" is simply the other side of the "tax cap" coin.

That is, I believe it is the case that there is no per se "cap" on the amount of monthly Social Security benefits a person can receive. Rather, the perceived "cap" simply reflects that fact that, because a person's Social Security benefits are calculated based on the taxable wages (Social Security-taxable wages, that is) that person earns over the course of his working life (specifically, an amount derived from the average of the highest 35 years of wages), the existence of an annual "cap" on the wages subject to the Social Security tax necessarily entails that the person's benefits are "capped" accordingly.

For instance, I will have earned in wages this far more than the $106,000 that is subject to the Social Security tax in 2010. Yet, if I live long enough to collect Social Security benefits, I will only be "credited," as it were, with having earned $106,000 in 2010, and my benefits will be calculated accordingly. In other words, a person who (for the highest 35 years of his working life) has earned above the amount of wages subject to the annual tax "cap" will receive the "maximum amount" of Social Security benefits. It's not that his or her benefits will have actually been "capped"; it's just an artifact of how benefits are calculated.

So, in answer to your question, if the "tax cap" were removed, then, absent some change in the way that benefits are currently calculated, the "benefits cap" would be removed automatically.

[Nye Bevan]

23. I agree with you. But most here seem to disagree.

I get the impression that most DUers want to see the tax cap removed *without* having any corresponding increase in benefits.

[MousePlayingDaffodil]

26. Yes, and as you point out . . .

. . . that prompts the question of how such a change, if it were implemented -- and my only point, really, was that "capping" benefits would require an affirmative change in the benefits calculation formula that the Social Security program has always used -- would ultimately affect public perception of, and public support for, the Social Security program generally.

[Hannah Bell]

48. for the same reasons that poor people vote for republicans.

[defendandprotect]

58. No -- I think anyone here would want the wealthy EQUALLy benefitted from their

payments --

I just think that the concentrtion right now is on the FICA cap on earnings --

and the discussion isn't really concentrated on the other end of it --

At least, I trust I'm correct -- !!!

??

[pampango]

34. Good point. If we only remove the tax cap, the current formula SS uses to calculate benefits will

result in higher monthly checks for those paying more into the system under a higher (or no) tax cap.

Of course, for a couple of reasons that might not be a big problem. One is that at the higher income end the benefit calculation formula means that the replacement level of wages that SS benefits represent is much less than it is for lower wage earners - one of the main reasons that SS is such a progressive income redistribution program. The wage earners who will pay in more if the tax cap is raised/removed would see their monthly benefit increase somewhat but not by a large amount since the replacement level is small at higher income levels.

The other is that SS benefits are taxable, so that those with a lot of other income will not keep some of the increase in their SS checks which came from the additional taxes they paid after the tax cap was raised/removed.

A third option would be to raise/remove the tax cap, but refigure the benefit calculation formula so that any wages/taxes paid above the old cap have no effect on the amount of their check - effectively a benefit cap.

None of us like to pay more and get less, so we will have to factor in the possibility of declining support for Social Security among the wealthy in the long run - the reason there was a tax cap put in place in the first place. But if that is what needs to be done to support a progressive program like Social Security than we do it.

[MousePlayingDaffodil]

38. You are correct, of course . . .

. . . that the Social Security benefits formula is already tremendously progressive in that, given the way the so-called "bend points" are configured, high wage earners see a considerably smaller percentage of their life-time average monthly wage "replaced" by Social Security benefits compared to lower wage earners -- which is one reason why higher wage earners would not be indifferent to the "tax cap" being eliminated.

[Romulox]

19. Nobody's overlooked that--it's implicit in the whole thing that benefits would not rise.

"f not, you are effectively turning Social Security into a means-tested welfare program"

I prefer to think of it as progressive taxation--something which used to be a foundational principle of this party.

[Nye Bevan]

21. How is it implicit that benefits would not rise?

Benefits have always been linked to contributions. Abolishing the cap on contributions and removing the link between contributions and benefits are two separate things.

[Romulox]

28. Because nobody is calling for increased SS benefits for the wealthy. nt

[Nye Bevan]

29. But if you abolish the earnings cap, SS benefits for the wealthy *will* increase

unless you *also* change the formula that links benefits and contributions.

[Romulox]

30. LOL. This isn't an alchemical recipe. Legislation can both cap benefits and uncap contributions.

We've been over this subject (at length), before. :hi:

[Nye Bevan]

33. OK. So it is *not* "implicit in the whole thing" that benefits would not rise.

You can uncap contributions, but if you stop there then benefits will rise. You can of course *also* cap benefits, but that requires separate legislation.

The problem with uncapping contributions while capping benefits is that it makes SS look more like a welfare program than a savings plan, which will endanger the broad political support that the program currently enjoys.

[Romulox]

35. Of all the things SS is, it is emphatically not a "savings plan".

"You can uncap contributions, but if you stop there then benefits will rise. You can of course *also* cap benefits, but that requires separate legislation."

You're belaboring a point that has been explored extensively in previous threads on the subject. Nobody is calling for increased benefits for the rich.

"The problem with uncapping contributions while capping benefits is that it makes SS look more like a welfare program than a savings plan"

Of all the things SS is, it is emphatically not a "savings plan".

[Jim Lane]

63. I disagree. I for one am "calling for increased benefits for the rich."

I favor eliminating the cap (though probably through a gradual phase-out, not an immediate and complete elimination that would stick some people with sudden huge tax increases).

I also favor keeping the current relationship between taxation and benefits. Yes, this will mean that some rich retirees will draw monster Social Security checks. That's OK.

Because the benefit formula tilts toward progressivity, this change is not revenue neutral. The system would take in more in increased taxes than it would pay in increased benefits, so its financial picture would be improved. I don't have up-to-date data but here's how the advisory board appointed by Bush assessed the impact of the change on the projected Social Security deficit in 2001:

Making all earnings covered by Social Security subject to the payroll tax beginning in 2002, but retaining the current law limit for benefit computations (in effect removing the link between earnings and benefits at higher earnings levels), would eliminate the deficit. If benefits were to be paid on the additional earnings, 88 percent of the deficit would be eliminated. (from , p.23)

The numbers may be different today but I'm sure the basic point is still correct: You can maintain the linkage between taxes and benefits (thus giving rich retirees huge checks) and still effect a big improvement in the financial outlook for the system. For political reasons, I think that's the way to go.

[eridani]

66. The benefits calculation is already progressive. Why should that change?

Sure you get more if you put in more, but proportionally less than lower income people.

[Jim Lane]

67. Some DUers want it to change

The other comments on this thread make it clear that some people would eliminate the cap (or perhaps set it at a substantially higher number), yet not pay the high-income retirees any increased benefits. That could be done by a simple change in the benefits formula. (The former cap would become a cutoff line, adjusted annually as the cap is now. Income above the cutoff line would still be subject to FICA taxation but would not count toward the computation of benefits upon retirement.)

People who favor action on the cap should clarify which camp they're in when it comes to the benefits. The choice isn't clear-cut. Each approach has its drawbacks.

[eridani]

68. The increased benefit level would just be smaller than the increased tax

Just a way of moving the entire program up a notch.

[Ganja Ninja]

22. No you wouldn't because the increased life expectancy they keep talking about ...

is an increased life expectancy for the rich. The poor are still dying earlier.

[mopinko]

45. and undermine the self pride of the recipients.

there are lots of people who would never take a dime of welfare, but hold their head up when they get their ss check.

[kentuck]

16. Consider it a social cost of being a US citizen...

and make it means tested. It's an insurance program, not welfare for the wealthy.

[hughee99]

40. Exactly, an insurance program that only pays out to those with the lowest premiums.

I thought that the way "retirement insurance" worked is that anyone could pay in, and when you retire, it pays out. When it becomes means tested, it IS "welfare", not "insurance". While most people seem to be in agreement now not to fuck too much with SS, wait until you announce that everyone gets to pay in, but only some people will get benefits. See how fast people are willing to screw with it then.

[xchrom]

24. this should not be welfare for the upper classes -- and with the crisis

being leveraged against the lower and middle classes -- this is a welfare program that could pay off big.

[blondeatlast]

27. Quite honestly, I'm torn about this and damn glad it isn't up to me to decide. nt

[mainer]

31. No. Raise it, but don't eliminate it.

Otherwise you'd have high-earning taxpayers paying in huge amounts, without getting any sort of compensatory benefits in retirement. This is, quite simply, welfare. The end result is that high earners will try to opt out, and the whole system will suffer.

If you want taxation to be progressive, then do it with income taxes. Not with Social Security, which is insurance for EVERYONE and should be kept as such.

[hughee99]

43. +1

[Romulox]

32. The "welfare" argument is so disingenuous, given all the resources of the Federal Gov't marshalled

in the interest of the wealthy. It's not like it's possible to get rich in a vacuum; all those bankster bailouts and gunships deployed overseas have something to do with it.

[mainer]

36. If the cap goes away, high earners can't fund retirement plans

What you are suggesting is that everyone, both high and low earners, should have their retirement benefits max out at the same amount across the board. Even though the high earners have contributed many, many times more to the SS fund than everyone else, in the end you want them to collect the same $2400 a month that everyone else does?

Someone who earns, say, $250,000 would see 15% of his income go to Social Security taxes, limiting what he can simultaneously save in his own private retirement plan. What if illness bankrupts him? Even if he contributed a million bucks to Social Security -- money which he could have been saving in a 401 K -- he will have nothing but his $2400 a month check.

[laughingliberal]

39. Oh, please! We were paying FICA on all our income and putting a hefty percentage in a 401k...

through my employer and an IRA for my self employed husband. Neither of us ever came close to the income level that would have allowed us to avoid FICA taxes on every penny.

Boo-fucking-hoo. They might have to sacrifice a little.

[JoePhilly]

50. I'm one of those who gets a "raise" when I reach the cap ... and I agree with you ...

If the cap disappeared tomorrow, it would screw me up some, but honestly, only from a planning perspective.

My wife and I have been maxing our 401ks for a long time, so that money is safe. And as things stand, the cap has been rising already, was 94k back when I first realized any of this, its now 106k ... and it should continue to rise until gone. Changes to the cap won't change the level of my 401k investments at all.

[Romulox]

49. Won't SOMEBODY think of the high earners in this country????

:rofl:

[JoePhilly]

55. Your post is way off ...

First ... the notion that high earners can't fund 401ks is ridiculous. My wife and I make over 250k. We can fund our 401ks fully now, with the cap at 106k, just like we did when it was 94k. It is TAX DEFERRED money, and so we would be stupid to not MAX IT.

Second ... Social Security benefits are adjusted based on what you put in. Which means high earners get more already. Most Americans will not get the $2400 a month you refer to ... I will, but given your post, I suspect you will not. If you are unsure, every year, around this time, the government sends you a statement of what YOUR current SS benefit looks like. You should check it.

Third ... high earners have a wide array of mechanisms to reduce their taxable salary. The 401k is one, Health reimbursement accounts are another, childcare accounts yet another, and then ... the best ones ... DEFERRED SALARY, and STOCK OPTIONS.

Look ... at the top end, there are TONS of ways to reduce taxable income ... let me use the company car, company jet, and a wide array of benefits that are NOT TAXED!!

Folks between 250k and about 1 million generally can't take advantage of all of these, but they can use some of them ... but once you hit 1 million or so ... then, no problem.

Oh ... and then, we can play Estate Tax game, in which I defer Salary, with tax deferred too, and I have a 401k, also tax deferred, but I might be able to pass that all to my heirs TAX FREE ... when I die. Sweet.

[kentuck]

37. I wonder what the limit is in other countries?

Do people stop paying taxes at 106,000 to pay for any social programs??

[mainer]

42. that's what income taxes are for.

The Dutch, for instance, have a separate tax for social security.

[AnArmyVeteran]

41. The rich make money off of OTHERS, so they should support others.

The cap should be eliminated. The wealthy benefit from our system more than any other class. But they pay a tiny percentage of their wealth to sustain our country and our workers. The poor and middle class pay a much bigger percentage to build a country in which the wealthy can profit off of. Removing the social security tax cap is way overdue.

[Hannah Bell]

46. should it go away? no. should it be raised to cover 90% of all income, as it was originally

designed to do? yes.

[Romulox]

53. What is it about that last 10% that's so special? 100% of my wages are subject to FICA

:shrug:

[Hannah Bell]

62. example: say total contributions to SS = $100, paid by 10 people.

Five have income of $1 & pay 6.25% of all their income into SS.
This low-income segment pays a total of 30 cents into SS.

Two have income of $5 each & pay 63 cents.
One has income of $15 and pays 94 cents.
One has income of $20 and pays $1.25.
This middle-class segment pays a total of $2.82 into SS.

The last person is the highest-paid wage worker. He makes $50, But only $40 is subject to SS tax.
He pays $2.50, nearly as much as the entire "middle class".

Totaling all these sums:
.30
2.82
2.50
-----
$5.62 = total SS payments.
Top guy pays 45% of total, middle four pay 50%, Bottom five pay 5%.

Now say we tax 100% of wage income.
Top guy now pays $3.125, others remain the same.

3.125
2.82
.30
-----
6.25 with top guy paying 50% of total, middle = 45.2%, bottom 4.8%.

The more unequally wage income is distributed, the bigger this effect is.

The more the upper tiers of the wage hierarchy pay without commensurate benefits, the less they support the program -- breaking the alliance that's kept SS in existence for 70 years.

IF YOU WANT TO TAX RICH PEOPLE, DO IT THROUGH THE INCOME TAX & LET THEM PAY OFF WHAT THEY BORROWED.

THAT WAY YOU TAX CAPITAL, not just WAGES.

[librechik]

51. Of course. And payouts should double, to stimulate the economy

and for the sake of compassion and morality.

http://www.thomhartmann.com/blog/2010/08/dont-take-away-social-security-double-it-instead

[B Calm]

54. Damn right it should, Then they should lower the retirement age to 60

and thus open up jobs for the younger generation.

[defendandprotect]

57. Agree ... :)

[defendandprotect]

56. Yes ... how many "millionaires" have gone bankrupt now? Enron people who thought

they had it made -- wouldn't hurt anything -- and they'd also get

back what they paid in -- same as anyone else!!

[FiveGoodMen]

59. Hell, yes!

[Desertrose]

61. Yes!

[Canuckistanian]

64. 73% say yes. It's a mandate.

Kill the cap.

[TheKentuckian]

65. I know that I haven't a clue why half the posts in this thread are so worried that the wealthy might

get the short end of the stick.

My concern about ANY more revenue for Social Security is that until we correct the slush fund factor our Congress critters will blow it on wars, tax cuts, and corporate welfare which will snatch defeat from the jaws of victory.

We must also correct the wage stagnation and destruction along with getting people working while reversing the structural wealth disparity. The system just isn't designed to go through the paces we are going through. Thirty plus years of stagnant incomes and high unemployment for as far as the eye can see is not in the game plan.

In the end, I'll error on the side of raising it with a willful diminishing return factor on high incomes as well as applying the tax to all forms of income.

The income disparity doesn't just rob the general fund, the factors that create it make most of the rest of us earn less and increase the odds of being unemployed for stretches both of which mean less pay in and benefit potential.

I don't care how you want to describe it but the wealthy really need to kick more into the program or it will continuously fade with each generation because the logically following deflation doesn't happen because the pie still grows and costs go up, it's just that fewer and fewer get dessert. That distorts the economy in scary ways.

I suggest a ten year increase in the cap to alleviate some of the imbalance while we try to address the structural issues and see where we are in a decade.

Bahhh...everything is such a mess and hard to explain so solutions and patches can be attempted or at least discussed.