Quote:
Originally Posted by blueash
There have been serious proposals on shoring up the Social security finances for years. The last significant changes happened in 1980s. There are yearly changes in the cap subject to FICA but those don't keep up with the increased cost of SSec. For 2021 the earned income cap will be 142800 after which any earned income is free of SSec taxation.
In 1982 90% of the earnings of Americans was taxed for SSec. But only 84% was taxed in 2017. This is because of increased income inequality. Eliminating the cap would make SSec solvent for 40 years per the Congressional Research Service, as long as the benefit calculations remained the same.
For those who are unaware, the benefits are NOT the same percentage of payout for pay-in at all income levels. Someone whose average earned income was $70,000/year does not get double the benefit of someone who averaged $35,000/yr. The system is weighted to give a higher retirement benefit to the lower earner relative to the amount paid in. Obviously the higher earner does get a higher absolute SSec payment
Read page 16 of the linked report to see how this works.
A small increase in the tax rate from the present 12.4% to 13.8% makes the system solvent for 75 years. Keep in mind that the payment into Medicare from earned income is not capped at all. All earned income is Medicare taxed.
Another issue is that employers are paying a lower amount of their benefit to employees as earned income. This is mostly true of higher earners. The working poor get paid a salary all of which is subject to FICA and Medicare tax, period. The better off get a salary subject to FICA, and health insurance, not taxed, life insurance not taxed, 401K match not taxed, Flexible spending account not taxed, Disability insurance not taxed. Just including the cost benefit of fringes in the Soc Sec taxable base would eliminate 43% of the solvency gap
Lastly I'd like to ask what the OP meant by
There has been no change in the requirements to qualify for Social Security in decades. |
Social Security is not meant to be a way of transferring money from rich to others but a pension system so you more or less get back what you put into it.
To me the best way to fix this is to increase the retirement age on a gradual basis to somewhere in the early 70's and keep increasing the age as our lifespans increase.
When they started this shell game and payments started at 65 they kind of forgot to remind people that the vast majority would not live that long so they amassed a large nest egg that the govt decided to borrow with so far no intention to repay.
And remarkably we keep voting in the same people who have mismanaged our economy for years and years.