Why the income cap on Social Security earnings?

Sean Williams of The Motley Fool writes a comprehensive article on a number of Social Security calculations.  Briefly, workers pay 6.2% of their incomes (employers pay another 6.2%) in payroll taxes, known as FICA, into the program, but only on the first $128,400 of earned income.  That means someone earning $128,400 and another earning $2 million each pay the maximum of $7,961 in payroll taxes in a year.  But that’s only half the equation as benefits are capped too, with the maximum being $2,788 a month, no matter how much one averaged over the cap in their working lifetime.

In October each year, the Social Security Administration updates that income cap as well as the maximum earnings cap, the maximum taxable earnings cap, the retirement earnings test, and the monthly amount of all those receiving benefits to account for inflation.  The $128,400 taxable cap is being discussed in Congress, and there are bills to lift or remove it to require the wealthy to pay more into the program.  However, in doing so, the wealthy would receive no extra benefits come retirement because of the aforementioned monthly benefit cap at full retirement age.  Lifting or removing the payroll tax cap to raise additional revenue is seen by many as a rather easy way to address Social Security’s long term funding problems, but doing so would also change the nature of the benefit program.  Read more here.

The Association of Mature American Citizens (AMAC) advocates for a strengthening of Social Security and has developed a bipartisan compromise bill, titled “The Social Security Guarantee Act,” taking selected portions of bills introduced by Rep. Sam Johnson (R-TX) and Rep. John Larson (D-CT) and merging them with the Association’s original legislative framework to create the new Act. AMAC is resolute in its mission to get the attention of lawmakers in DC, meeting with a great many congressional offices and their legislative staffs over the past several years. Learn more about AMAC’s Social Security Guarantee here…


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