The weird thing about Social Security is that the fix for future problems with it is so simple — yet is never seriously discussed by ‘responsible’ media or politicians.
All you have to do is to remove the income cap, and Presto, all future financial problems disappear.
Why is this cap a problem? The cap means that FICA/Social Security taxes are only paid on the first $106,800 of income, but no additional money earned gets taxed.
Right now, if you earn up to $106,800 per year in wages and salary per year, you pay a flat rate 6.2% of your income to FICA, for a maximum of $6,621.60.
However,when a really wealthy person earns, say, a couple of million dollars per year in wages and salary, they pay that exact same maximum, $6,621.60.
What about somebody like Warren Buffett or Bill Gates, who most likely earn most of their billions from stocks, dividends, and other investments? How much do they pay in FICA (Social Security) taxes on that money?
Zilch. Nil. Nada. Zip. Zero.
So if a wealthy person earns $2,000,000 per year in wages and salary, and another $2,000,000 in income, dividends, and investments, their TOTAL Social Security tax for the entire year is that same magic number: $6,621.60.
Now, if we divide that tax by their total income (four million dollars), we get an effective tax rate of 0.16554%.
No, I didn’t just say sixteen percent.
I said LESS THAN TWO-TENTHS OF ONE PERCENT.
Roughly one part in 625.
Rather than about 3 parts out of 50, which most taxpayers (those not millionaires) have to pay.
If this hypothetical millionaire had to pay the same rate of payroll taxes as everybody else, then they would contribute $248,000 to the Social Security trust fund. As opposed to about $6,600. So this person pays less than one-twentieth of the tax rate of everybody else.
Which is why the rich are so dead-set against making Social Security taxes fairer. They like regressive taxes. They want the poor and the middle-class to pay.
Instead, the millionaires and their bought-and-paid-for politicians plan to cut benefits on folks who could really use the money. And they propose raising the retirement age, and to impose penalties if you retire early, and so on.
These selfish SOBs of course have lackeys like writers for The Economist and the Heritage Foundation who will try to twist facts in a desperate effort to show how it’s bad to have the rich even pay the same tax rates as the rest of us. Don’t believe their self-serving propaganda.
What’s more, in addition to making FICA taxes somewhat more fair, removing the income cap would remove all danger whatsoever that the Social Security funds will ever run out of money.