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Your Take: Raising the Social Security Income Cap

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It’s been talked about for a while now but Senator Bernie Sanders (I-VT) has introduced a bill that would remove the Social Security income cap. Right now, the cap is at $106,800. This means that employees would pay their share of the Social Security tax for all of their income, not just what they earn under the cap of $106,800. Right now, employees pay 6.2% to Social Security on compensation up to $106,800 (it’s actually less because of the payroll tax holiday), which means a maximum payment of $6,621.60. If this bill were to become law, there would be no limit.

I’ve always found it strange that there was a Social Security income cap in the first place but that’s how the system was designed. It seems like a sensible idea and I’m eager to hear what the accountant thinks this will do in terms of SS solvency.

What do you think about it?

{ 141 comments, please add your thoughts now! }

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141 Responses to “Your Take: Raising the Social Security Income Cap”

  1. Kochfarm says:

    I think SS is wrong, another method or redistributing income. Bad investment return unless you are a low wage earner, then it is great for you, because you didn’t earn it.
    But, it will never be repealed or adjusted fairly. If it is to be, then it should be universal. All employment, self-employment, Gov, Politicians, military, railroad, Post Office, all should be covered for 100 of the wages or earnings, equal pain for all. Those with other retirements can keep the same or adjust for the new rules. This move should properly fund the “retirement Welfare system” and alien it as a “tax” like it really has always been!

  2. Kenny says:

    Guys, there are two opinions that can be given.

    If you make under $106K then, you are kinda neutral or happy, and feel it is fair.

    If you make more than $106K, I would say that it is going to eat away more.

    Now, in either case, one has to make the equation of ROI.

    If you take less due to the cap, are you giving less? YES.

    If you take more, are you going to give proportionately more? I DON’T THINK SO.

    If the latter is true, then removing the cap is a bad idea.

    Also, does anyone know if we are ‘exempt from IRS Taxes’ on this money that is taken away when we earn it? I am particularly thinking that we have to pay tax when we earn it after age 62 or 65+. If we have to pay taxes at that time, and also pay taxes on it as we earn it, isn’t that DOUBLE TAXATION?

    Please comment.

    Kenny

    ps: I make more than $106K combined income.

    • MoneyNing says:

      It’s not really double taxation if you think of social security as a “pay for your own future” program because you aren’t taxed for your portion of income that actually goes into social security.

      Think of it like you are handing someone your pretax cash, then when you start collecting, you are getting it back inflation adjusted, which then gets taxed for the first time.

      • Anonymous says:

        It’s double taxation for those affected by the Windfall Profit elimination Act that affect only those retired federal workers getting a government pnsion. They do not get their full SS that they paid in becase of the fact they are only allowed 1 pension, no matter how much they paid in or whether they even get a full government pension. It is a penalty for working more than 1 job and being in a situation of retiring under the CSRS system. A ripoff of the proactive planner.

  3. Jared says:

    I am in favor of the idea also, for the most part. The reason the cap existed in the first place is because SS benefits, too, are capped (or more technically, any income above the cap isn’t counted toward determining your benefit). So it seems reasonably fair.

    That said, significantly raising (or eliminating) the cap seems like the most low-impact change that would address SS solvency.

    I’d like to see some sort of blended approach. For example, let’s say half of the additional revenue raised by this measure went toward the benefits of those who paid it. The other half would then go a long way to helping the solvency of the system. It’s more “redistributive” than the current system but still goes a long way toward solving the problem.

    Thoughts?

    • Jared says:

      To clarify, by “low-impact,” I mean “smallest negative effect on the economy because of higher taxes.”

  4. Guy In San Antonio says:

    I am a CPA. Let’s just be honest and note that this is just another tax. The government doesn’t separate this money for my retirement and it is likely that i will over prepare and they will use my assets as a reason to deny 100% of my benefits (look up “means testing”). The wage base was $35,000 in the 80′s. Isn’t $106,800 high enough? In the 50′s the wage base was $3,000.

    Class envy is a popular ploy. What people need to keep in mind is that the rich always escape added tax. It is the ones trying to become rich that suffer.

    Never let yourself covet another’s success. It will bite you

    • NateUVM says:

      Read: Stop trying to protect the rich under the premise that you will ever become rich yourself. Odds are it won’t happen.

  5. DonC says:

    One other thought that no one else is discussing here is that why are only wages subject to SS taxes? What about the self employed and the S corporation business owners that do not pay (as much, if any at all) into the SS system. Now I’m never for raising taxes. It just seems silly that only wages are subject to the SS tax.

    • Jim says:

      Self employed people pay into SS, they pay both the employee and the employer side so they pay twice as much as someone who is just a “regular” employee.

      • DonC says:

        I agree, but the self employed pay on NET self emplopyment income. They get to deduct all sorts of deductions agains the gross income. Wages? You pay on gross wages, no deductions.

        • Christine says:

          While it is true that the self employed have deductions from gross income that’s only fair as a business owner why you should you be taxed on the cost of your materials, supplies etc that you must purchase to do business?
          As for S corp owners, they are required to take a paycheck so they pay fica tax based on their earnings just like everyone else does, additionally they pay income tax on net income from the business.

  6. DonC says:

    I’m fine with raising the cap if the worker will get more in return when he/she retires.

  7. pmulroy says:

    Sensible idea? Are you kidding me?

    If Social Security is for the benefit of everyone, then everyone should be expected to contribute more to hold off its insolvency. But make no mistake, you are only holding off the inevitable. I certainly hope any young people reading this blog are saving for retirement themselves and not planning on Social Security being around when it is time for them to retire.

    Social Security is nothing more than a legal pyramid scheme. The original tax rate was a 1% for employee and 1% for employer, or a combined rate of 2% on the first $3,000 of income. The combined rate today is 12.4%(once the temporary employee break expires) of the first $106,800! But feel free to stick your head in the sand and pretend everything will be ok if only we could tax the rich more.

    The crazy idea of allowing the majority to give themselves benefits and have a minority shoulder the costs is the reason government spending is out of control. Everyone wants something from the government and expects someone else to pay for it.

  8. Richard says:

    Roosevelt said SS would not be taxed. Lyndon Johnson put our money into the general fund and politicians have stolen it. If they had left it alone the fund would be very solvent…enough for everyone. If Bernanke insists on running his printing presses, he should print up a few trillion dollars and replace the money taken from us.

    • Robert Martin says:

      Amen.. You’ve got it correct. The slimy and greedy politicians take from the few (yes they can be greedy SOB’s too) and give to those who many times (not all) are too lazy to work. The saddest part of it all is that these lazy people will never reach their God-Given potential..

      • NateUVM says:

        If by lazy people, you mean the wealthy elite that are living off their trust funds and paying next to no taxes (just long-term cap gains). Are those the lazy ones that aren’t reaching their potential?

    • Cnunn85 says:

      Social Security funds were never put into the General Fund. Instead money was taken from the trust fund in the form of loans to other branches of the US Government. Which is why the trust fund has been replaced with IOUs in the form of Treasury Bonds.

  9. daenyll says:

    I am not expecting to get SS by the time I retire, but it would be nice to see something come back from what I’m paying into the system. I’m in favor of raising the age limits to better reflect lifespans and if someone wants to retire earlier then it’s up to them to prepare and provide for the choice. The system was never meant to provide a full living in the first place.

  10. Collin says:

    Are you serious??? It’s been a Ponzi scheme from the beginning. Here’s how you fix it:

    1. Allow folks to opt out of SS
    2. Charge a standard payroll tax of 7% for those that choose to opt out (to cover those already on SS and Medicare).

    This will increase the overall revenue into the system and allow people to get out.

    • Strebkr says:

      Whats the point of opting out if they will still charge you the tax? I wouldn’t give up my benefit unless I could stop paying in.

  11. Robert Martin says:

    Ok, so we give Washington Politician MORE of American’s hard earned money, because they’ve managed so well what they already had?? Are you people out of you minds?!!! First get a constitutional amendment to require a balanced budget, then proceed with meaningful tax reform. These people; Republicans AND Democrats have driven this nation to near bankruptcy and we should trust them more? I don’t think so..

  12. tbork84 says:

    I am certainly expecting SS to be around in some form when I retire, but in the meantime the age for receiving the full benefit of SS and the starting age need to rise. The cap could certainly be raised to a higher level than it is now in order to make the program solvent.

    The really frustrating thing is that the longer we take to make changes to the entitlement programs in our country, the more drastic and painful achieving solvency will be.

    • pmulroy says:

      It will never be solvent because it is a pyramid scheme and will always require an additional increase in the “cap” or a higher tax rate in order to “achieve solvency.”

      • Cnunn85 says:

        That ignores the fact that for the better part of 20 years the program actually produced a sizable surplus year after only to have Congress take that surplus and replace it with Treasury bonds. The program has been solvent and even profitable before and with the right changes it can be again.

  13. Rockbell says:

    I would support this proposal only if “means testing” or even the thought of it was eliminated. Because I saved should not be a reason for reducing benefits.

  14. zapeta says:

    I love these threads. If you make enough that you exceed the cap you can afford to pay more if they raise the cap….you’re not really going to miss that 6.2%. It’s interesting to listen to the rich complain about having to contribute a few more dollars to the government with the old “why should I pay?” line. I personally think that social programs are almost universally worth the cost to keep society together and as part of society the rich should be expected to pay their share. Just remember that there are a lot more poor people than rich people and if you give the poor no other options they will do what they have to in order to survive whether that’s resorting to theft or worse.

    • Texas Wahoo says:

      I wish we could get politicians to realize that ordinary income is not the best determination of rich vs. poor.

    • pmulroy says:

      The “rich” already pay more than their fair share, that is why they don’t want to contribute just “few more dollars.”

      • NateUVM says:

        How is paying less than those in the middle class “more than their fair share”?

        • pmulroy says:

          NateUVM,

          How do the “rich” pay less than the “middle class”. It’s a flat 6.2% of your income up to the cap that is collected. By definition the “richer” person must pay more if they earn more (up to the cap). Do you really need me to work out an example and show the numbers to you?

    • pmulroy says:

      By the way Zapeta, there is nothing stopping you from sending the government a check for some extra money above and beyond your legal tax obligations. Since you seem to place such high value on social programs, I’m sure you have done just that in these dire times of pending insolvency of Social Security right?

      Too bad everyone who thinks like you doesn’t do the same. Instead you just pontificate about how other people should be forced to foot the bill for programs that you like simply because they are “rich.”

  15. This bill violates the reason why SS taxes were capped–it’s because benefits are capped. What they’re going to is unlimited taxes to fund limited benefits.

    I think what it says, bigger picture, is that balance and reason are gone, it’s all about raising money.

    The scheme could even blow up of if the counter argument surfaces to take the cap off of benefits!!! I’m just sayin…

  16. Ben McCready says:

    Since it’s a social program, let’s set a minimum standard of living for an elderly person. To me this means a small apartment and three healthy meals a day, plus food and water. Figure out how much this costs ($25,000/year in most of the US?) and write retirees a check for that amount. Don’t make the social security tax any more than what’s required to pay this to retirees. It’s a safety net, and shouldn’t be treated as anything more than that. For any illness there’s medicare.

  17. DonC says:

    Wow, the government’s ponzi scheme is in financial trouble? Imagine Bernie Madoff going back to all of the investors (after he was arested) and saying “hey, I made a lot of bad promises. It’s likely that you will never see all of the money you put in, but I have promises to keep so you have to give me more money.” Investors at least have a choice. Taxpayers do not.

  18. NateUVM says:

    Perish the notion that one gorup of people in America have to pay more to a system than they get back from it, to the benefit of another group in America. Wouldn’t it be horrible if everyone, regardless of need, weren’t treated the exact same way?

    If that’s the case, we need states like Alabama, Virginia, Alaska, Arizona, Arkansas, Mississippi, West Virginia, Iowa, Kansas, Kentucky, Louisianna, Wyoming, South Carolina, North Dakota, Tennessee, Idaho, etc…the states that take IN more in Federal money than they provide in Federal revenue, to start paying back the states that provide more in Federal revenue than they get as a benefit. States like Massachusetts, Colorado, California, Nevada, New Hampshire, New Jersey, New York, Connecticut, Illinois…should be paid back the extra that they have paid into the system that they don’t get back.

    http://www.taxfoundation.org/research/show/22685.html

    So, can we get our money back Alabama?

    No, I’d rather live in a country where we all recognize that in order for everyone to do better, we all need to pitch in, proportionate to our ability to do so. Some need to realize that they are only in such a great position because of the great benefit that living in our society has brought them.

    • pmulroy says:

      NateUVM,

      I’m glad you believe everyone should pitch in proportionate to their ability to do so. That is what progressive income taxes are for.

      This thread is about Social Security taxes and if the “rich” should be forced to pay more for no additional benefits because politicians made promises they couldn’t pay for and now need an easy target.

      • NateUVM says:

        I’m all for the rich benefitting from it as well. If they are going to raise/eliminate the cap, they need to raise/eliminate the level at which the benefits phase out, too. There should obviously be some needs testing around that, though.

  19. Mark says:

    Back when social security was instituted very few people lived to 65.
    I argue the solution to fix the problem is raise the retirement age to 90.
    Then we aren’t eliminating the program.

    If people had children they should help out their parents when they are no longer able to work at as basic a level as they choose. I couldn’t stand to see my parents starve to death could your children?

    Those without children had enough money come in that they could truly afford to save for their own retirement or at least foster relationships with people who would be willing to care for them if not that’s their fault.

    All people under 90 on the system need to be kicked off with 1 years warning of loss of benefits.
    Eliminate medicaid for those under 90 so that fewer people make it to age 90, unless they abandon their claim on social security till age 100.
    All money paid in will go into the new social security trust fund along with all forfeitures due to culpability for past misuse.
    Anyone who had the right to vote during the time social security was raided for budgets must forfeit a portion of their benefits based on how many years they had the right to vote and the budget spent what was meant for social security. Those who had that right in fewer years will receive more benefits and less of the blame. The money forfeited will go into the social security lock box.

    Any amount left over after benefits have been paid out must be returned to the tax payers, proportional to what they paid in.

    Lastly of all the people who did not vote against budgets that raided the trust fund should lose all SS benefits and have all assets sold to replenish what was stolen. This includes inheritance of those all ready dead.

    This would fix the problem equitable as there would be no money taken that was not needed to pay benefits on a yearly basis.

  20. Ben says:

    Lets give the Federal Gov’t more money with which to be irresponsible? Let’s reward their ineptitude and down right thievery with more money being taken away from people who earn it while they devise more programs to buy votes from people who do not earn it. Great!

  21. Bonnie says:

    Social Security is such a farce. The federal gov’t acts as though it’s not a form of social welfare. It is and always has been. They want to raise the cap because they don’t want to do what they really NEED to do to make Social Security solvent. They need to raise the full and early retirement ages significantly. When Social Security was started, the FRA was 65, while the average life expectancy was 62. Now that life expectancy is in the 80s, shouldn’t the FRA at least be raised to the 70s? Also, they really need to investigate the states’ handling of Social Security disability and the rampant fraud among SSDI recipients.

    Back to the cap…are they going to raise the benefit cap also? I don’t think so. So they’re just making people pay more for the same benefit.

  22. TomM says:

    SS is nothing but a big socialistic ponzi scheme. If any of us were running it we’d be sitting in jail by now. It’s run by big government/politicians that could care less about any of us. It should be totally dismantled as it’s simply a corrupted system. what do you expect when you let government run something that takes in lots of money and is run by politicians? Jeeze, it’s not a question of how to run it but that it should be totally dismantled and done away with….then maybe people would say to themselves….oh my gosh I have to take care of myself. What a notion that would be in this day and age….taking responsibility for yourself instead of relying on a totally corrupted government system. Wake up sheeple! Government is not the solution, it’s the problem…..I think someone smart said that years ago…lol. And some of you on here probably think that they can manage Obamacare properly too.

    Ok, so now tell me how I’m mean spirited conservative and don’t care about anyone that can’t take care of themselves, that also didn’t have the opportunities that I had in life….blah, blah, blah.

    • NateUVM says:

      I LOVE the Ponzi Scheme “argument.” It’s super applicable when you are talking about programs at the level of the state. A state that is mandated by the power the people give it to guarantee what’s written into law.

      What about wars? What about taxation? Do you think, if we did any of these things on an individual level, that they wouldn’t be crimes, too?

      At least politicians are motivated by power that they only get to keep if they keep us “happy.” While their success in this area can certainly be debated, private corporations/individuals have no such incentive. As such, I have little faith in their ability to see to our needs, as a society, any better than the government can.

      • TomM says:

        Yeah, except for they don’t really do what’s written into law. Not to mention that the laws and rules that the average citizen has to live by are not all of the same rules and laws that our elected officials have to live by. They get to vote on their own raises, the don’t have to be part of Obamacare, they can write bad checks without getting in trouble….etc. etc. It’s ridiculous…..”do as I say, not as I do”…comes to mind with politicians.

        The only thing that a politician is motivated by is doing what’s going to get him/her elected to another term…..period! Heaven forbid they wouldn’t look at poll numbers, but instead make an unpopular decisions that is the correct decision.

        Either way none of this will ever change with the way the current “system” is set up. It has been so adulterated from the way the founding fathers set it up it’s just ridiculous.

  23. Cnunn85 says:

    I agree that this has been long overdue. In my opinion there never should have been a cap, but since we can’t go back and change it I say change it now. Also we should change the requirements for receiving disability payments. An overweight individual shouldn’t get a payment strictly for being overweight. Parents shouldn’t receive payments for their children’s ADHD if all that child needs is some form of discipline.

  24. Cnunn85 says:

    I think that this link is quite interesting. It is a year old though so the calculations need to be redone. But if the numbers are close to being true, we could raise eliminate the cap and raise the benefits for those making more than the current limit and still keep Social Security on firm ground. Then all we’d have to do is insure that Congress kept their paws off of the Trust Fund this time around.
    http://voices.washingtonpost.com/ezra-klein/2010/06/research_desk_responds_could_r.html

  25. Dana J says:

    Just read an article & If the income max was raised from it’s current $106K to even $190K
    ( NOT a full 250K)
    THAT ALONE WOULD SOLVE/cover 99% of the projected shortfall thur to 2050ish. I question further when the 106K max was established. Seems some math comparing the rise in income from that date to now may produce an intresting result. NOTE SSI is still fully solvent thur 2035. Then is would pay 75 cents for each current dollar. Beware of political stumpers tryin 2 smoke & mirror ya.


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