Thoughts on Removing the Tax Cap to Save Social Security
Although it’s been a fairly constant part of many Social Security reform proposals, the removal of the annual limit on earnings subject to FICA tax as a way to address the program’s solvency issue continues to stall in the face of pro and con analyses. Yes, making all wages subject to FICA taxation without adjusting accrued benefits would resolve a huge part of the solvency problem (88% according to some estimates). But then, given the progressive design built into Social Security’s benefit calculations, how does one deal with the broader concept of fairness in earned benefits? Forbes contributor
Interestingly, Ms. Bauer’s post tackles the difficult balance between the concept of Social Security as an earned benefit where all contributors pay their fair share vs. an outcome where, as she notes, “(o)nly the rich pay, and everyone else benefits.” To be sure, it’s a politically combustible topic, one that is expected to emerge as a key talking point as Social Security reform discussions move forward in the months ahead. With polling indicating clear majorities in favor of simply removing the cap, discussions will certainly prove to be electrifying.
To access Ms.Bauer’s Forbes post, click here… then, check out the Social Security reform proposal crafted by the Association of Mature American Citizens (AMAC)–The Combined Social Security Guarantee and Social Security Plus Initiative. AMAC’s proposal, you’ll note, does not include removal of the earnings cap, but addresses the problem in a variety of ways that increase benefits for lower earners, while guaranteeing solvency for generations to come and making it easier for younger workers to build wealth for retirement.
(Editorial note: The Forbes article referenced in this post includes a discussion on how benefits are actually calculated. The author uses factors which are different from what we find to be the actual Social Security formulas as presented in SSA documentation (https://www.ssa.gov/OACT/COLA/bendpoints.html)
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