Social Security payroll deduction stops at...

[SHRED]

....$100,000 per year earned... or there abouts


Raise it progressively to $500,000.

Would that make SSI solvent?

Why won't this happen?


----

[Stinky The Clown]

1. The welathy and high earners are a protected class in the minds of those in power.

That is a bipartisan statement.

[Richardo]

2. Obama has endorsed that.

I think during the campaign. I think it's a good idea too.

[OmmmSweetOmmm]

8. He also endorsed a public option and no mandates.

[berni_mccoy]

12. Congress didn't agree.

[Richardo]

13. We might get a public option anyway.

The GOP screwed the pooch royally by amending that bill in reconciliation. :HA:

[RaleighNCDUer]

23. He never bothered asking congress to agree.

If he'd fought for the PO the way he fought for this POS bill, we'd HAVE a public option now.

[OmmmSweetOmmm]

28. Actually the House voted for it in their first bill. And the

last total 51 Senators supported it. He could have fought for the rest. Also, do you realize how many voted for Obama over Hillary in primaries because she supported the mandate and he didn't?

[berni_mccoy]

39. The 51 total is b.s. Whipcongress is completely making that up to pressure them.

[OmmmSweetOmmm]

43. And you know that how?

[flyarm]

51. + 1 million!! eom

[daleanime]

3. Ask your self who it would affect...

and the question is answered.

[SammyWinstonJack]

17. Exactly!

:thumbsup:

[dmallind]

4. A valid question. There is an answer. How much it means is up to you

The answer is that the calculations used to determine benefits also stops at that level. Since SS benefits are based on income over working life, the more you make, the more you pay, the more you get in benefits - up to the maximum, which corresponds to the income level where you stop paying in. It would of course be perfectly possible to remove the maximum for paying in and keep the maximum for paying out, but it would be against both the initial intent and the initial and current operating mechanisms of the fund. It is not intended to function as a progressive or redistributive tax as it currently stands.

[MousePlayingDaffodil]

15. Your explanation is well expressed . . .

. . . I just have one quibble with one statement, which is this:

It is not intended to function as a progressive or redistributive tax as it currently stands.

As you may be aware, there is already a measure of "progressivity" built into the formula by which a given recipient's monthly benefit (which goes by the name, I believe, of the "primary insurance amount") is derived. That is, the formula used to calculate a person's monthly benefit involves a series of so-called "bend points," in which the system "replaces," as it were, an ever-decreasing percentage of the person's average indexed monthly earnings.

For instance, for 2010, the benefits calculation formula "replaces" 90% of the person's monthly wages through the first $761. Thereafter, under the formula, 32% of the person's average indexed monthly earnings between $762 and $4586 are "replaced." For all monthly earnings over $4586, the formula results in only 15% being "replaced."

Thus, while high-wage earners do receive greater benefits from the system upon retirement, on the margin they realize a smaller percentage of "replaced" benefits than do lower-wage earners. Therein lies the "progressivity" in the system's benefit calculation formula. And were the wage/tax "cap" be eliminated, this progressivity, as it pertains to very high-wage earners -- whose average monthly wage, for instance, might be many thousands of dollars above $4586 -- would be even more profound.

[dmallind]

16. Good point. Agreed. My thinking was too broad and not detailed enough. NT

[Statistical]

19. This is a good point.

However raising the cap alone (even with progressive structure) will not completely cover shortfall (per AARP analysis).

It covers about 39% of the "gap".

http://en.wikipedia.org/wiki/Social_Security_debate_%28United_States%29#Proposals_that_keep_an_entirely_government-run_system

However most people when they say "raise the cap" without any clarification are thinking just raise the "tax" with no increase in benefits. Thus monthly earnings above $10,000 (current cap) would be replaced at 0.000%

I think that is a horribly dangerous idea. We should raise the cap but we shouldn't change the structure. It should be progressive but it shouldn't be confiscatory.

Also we need to be honest and say "ok raise the cap. Done. That gets us 40% of the way there. What is next."

My opinion is it will require a "all of the above" approach.

1) Raise cap
2) Raise taxes on benefits (for wealthiest Americans)
3) Require all (100% no exceptions) new employees to be covered
4) Raise the deduction rate by 1%

Those 4 things would completely cover any future shortfall.

[daleanime]

24. Seems sensible.....

which means it will never happen.:banghead:

[melm00se]

5. I am not sure on the impact of this

you amount paid out is commensurate with what you pay "in" so if the amount paid increases wouldn't there have to be a corresponding increase in pay outs?

Please correct me if I am wrong in the assumption that the more you make (up to the $100Kish cap) the larger your social security monthly payout would be.

[Statistical]

6. Yes and No. Depends on if you raise benefit level also.

If you raise cap but don't raise benefit then it would make it solvent however long term you would have delivered a death blow to SS. You just turned it into welfare. The pressure to "reform it" = cuts, rollbacks, later retirement will simply increase. Also if not indexed for inflation each year more and more Americans will move above the $100,000 mark and thus will have political incentive to have system reformed. The fact that everyone participates and everyone gets paid has kept SS alive where other programs have been axed.

If you raise the cap and raise benefit level it would help (it gets you 39% of the way to solvency) but you would still need more reforms. Raising the cap AND raising the deduction by 1% AND requiring all new employees to participate (govt employees don't have to) would be enough to make SS solvent infinitely.

http://en.wikipedia.org/wiki/Social_Security_debate_%28United_States%29#Proposals_that_keep_an_entirely_government-run_system

Here is a good analysis of various proposals and how much they help close the gap (done by AARP).

Revenue raisers
1. Raise the cap to 90% of taxable earnings - 39% reduction in shortfall
2. Increase payroll tax rate - 46% reduction per 1% rate increase
3. Raise taxes on benefits (high income earners) - 10% reduction in shortfall
4. Preserve tax on estates over $3.5 million - 27% reduction in shortfall
5. Extend coverage to newly hired state and local government employees - 10% reduction in shortfall
6. Invest 15% of the trust funds in stock and bond index funds - 15 reduction in shortfall (some market risk)

Cost trimmers
1. Adjust the COLA - 18% reduction in shortfall
2. Increase normal retirement age to 70 - 36% reduction in shortfall
3. Progressive Indexing - Index benefits to prices, not wages - 100% reduction in shortfall

[DrDan]

20. but wouldn't this get us over the baby-boomer generation crunch

increased benefits would not apply as their level is already determined.

For those paying increased levels would be retiring during later years - and the crunch from the baby boomers would begin to decline.

This is obviously a complex situation.

[Statistical]

22. If increased benefits don't apply then you turned SS into a welfare program.

It will last about as long as any welfare program does.

Raising cap (which should be done IMHO) and keeping progressive repayment system in place closes the gap by 40%.

You still need to come up with the other 60% or trust fund will run out before baby boomer's are dead (sorry to be crass).

The system can handle a "pay go" structure for every generation after baby boomers but they will live for quite a while (not saying they shouldn't). That is just the reality.

If you caculate the projected payments vs projected income in SS (and include repayment of trust fund) it will be about $5.3 trillion dollars short. We need to come up with $5.3 trillion in revenue (or less expense) to "get over the baby boomer hump".

Raising the cap eliminates 40% of that $5.3 trillion shortfall. What do you do about the remaining 60%?

My belief is it will require an "all of the above"
1) raise cap - 39%
2) raise taxes on benefits for high income retirees - 10%
3) require 100% participation for new hires (many govt employees don't participate) - 10%
4) raise payroll deduction rate by 1% - 46%

Those 4 things combined get us over the $5.3 trillion "baby boomer hump".

There are other ways to slice & dice it but raising cap alone won't solve SS.

[DrDan]

27. while there is some pain in those 4 points - the pain is manageable and fair (it seems to me)

however, I more expext to see the Cheney deficits-don't-matter approach.

[Romulox]

30. Just like the "High Risk Pool" and the Healthcare subsidies, and the Exchange, you mean?

All of this is "welfare" by the same token.

[Statistical]

34. I have no problem with programs that help the needy.

I just also know I live in the reality of the United States.
Even Clinton worked hard on (and was proud of) passing "welfare reform".

The flip-side is how resilient SS has been to any attempt at tampering by even Republican majorities.

The strength of the SS system is the everyone pays, everyone receives system.
The payout is already progressive. Wages near the bottom receive replacement at close to par (1:1) wages at the top receive substantially reduced replacement.

So it is resilent and progressive. Tamper with that fundamental and likely we will see the "SS/Welfare Reform Act of 2022".

[Romulox]

35. Social Security already pays out more during the average recipients life time then they paid in...

In other words, it's already "welfare" by that broad definition. Which is why seniors are constantly terrified of rate reductions--they are in the discretion of the Congress precisely because Social Security is not an investment plan to which Seniors have a contractual right. :hi:

[Statistical]

38. That ignores the cost of capital and inflation.

While SS may not be an investment plan (no contractual rights) money borrowed against the SS trust will be repaid with interest.

If SS trust fund didn't exist the govt would still have that interest obligation. We spend more than we borrow. The cost of capital wouldn't magically go away it would just flow overseas.

As a result of SS trust fund the govt has borrowed $2.6 trillion LESS from overseas sources. The interest and repayment return to SS trust fund. Thus workers earn a premium on their money.

That premium is very progressive. Lower income workers receive higher return on their deductions than higher income workers do.

As long as we are a debtor nation borrowing against SS (and thus generating interest revenue to our future selves) makes far more sense than borrowing from outside sources (transfer or wealth to China).

[Romulox]

40. You're retreating from the "changing the formula = welfare!" argument now...

Your argument is that uncapping SS makes it "welfare", remember? When you concede that the program already pays more than the beneficiaries put in you've essentially abandoned the argument. :shrug:

[Statistical]

41. No I said we should uncap SS.

I have said it at least a dozen times in this thread.
Just understand that uncapping SS will result in higher benefit payments.

Thus uncapping SS is PART OF THE SOLUTION but not the whole solution.

AARP estimate is that raising cap on SS will reduce the unfunded future liabilities by 39%. To make SS completely solvent without benefit cuts requires more revenue.

[Romulox]

42. No, uncapping SS will not result in higher benefit payments. They will be capped at present levels.

Done. :hi:

[Statistical]

44. Your wrong. There is no hard cap on benefits. Benefits are based on deductions (which are capped).

The existing formula results in replacement income of about 10% at full retirement on all deductions above about $4000 per month (indexed to inflation).

The payout formula has no cap. The current maximum payout is only "capped" because the deductions it is based on are capped.

Now if cap is removed they will rise in a progressive manner but they will rise. The replacement value (based on current formula) for "new uncapped deductions" will be only about 10%. Thus 90% goes towards solvency on the system.

Still benefits will rise. The increased benefits paid out will be less than the increased deductions collected. Uncapping SS is required and a substantial part of SS reform. It reduces the unfunded future liabilities by about 39% (per AARP analysis).

Still that alone doesn't solve SS "crisis". It is a good first step and moves up 39% of the way to finish line but something else needs to make up the difference.

[Romulox]

46. Your prediction of future legislation is "right", and mine "wrong"? It's silly. nt

[Statistical]

48. What? Can you not read?

The formula is EXISTING legislation. You made a false statement. BENEFITS ARE NOT CAPPED. PERIOD. They currently have a maximum payout ONLY because deductions are capped. When deductions rise maximum benefit will rise

Maximum payout rises ever year because the deduction cap is subject to inflation.

http://www.socialsecurity.gov/pubs/10070.html
Shows how SS payouts are calculated. There is no cap on payouts. There is only a maximum payout because there is a maximum deduction.

Legislation that removes/raises cap on deductions will result in higher benefits. Pretty simple arithmetic we are talking about.

[Romulox]

49. The existing legislation is the one with the cap. I propose it be changed.

It's not interesting to argue the effect of changing just the cap when everyone I know who advocates this also advocates for capping benefits. The change required involves both steps.

[Statistical]

50. I live in the real world.

A world where we barely got any Health Care Reform with super majorities and Presidency.

The idea you can sell to the American people a rise in deductions without a rise in benefits is silly. It won't pass and if it did Republicans would use it to gut SS next time they take control of Congress.

The fact that everyone participates, and everyone benefits from SS is why it has survived.

Raising the cap and keeping existing formula is a good compromise. Raising the cap would makes SS more progressive (wages above $55,032 receive only 15% replacement income).

Hypothetical question:
Say there was a bill in Congress that had votes to pass that would raise cap on SS (while keeping existing formula).
This would reduced unfunded liabilities by about 40% (almost half way to solvency)

Would you oppose it because benefits would also rise?

Another way to look at it (if AARP numbers are right).

SS has $5.3 trillion liability in future (present day value).
Raising the cap would mean the rich would pay $2.38 trillion more into system while receiving $357 million in more benefits. The net gain for SS is $2.07 trillion. The rich get some of that money back but the lionshare helps SS and thus it is progressive.

Your system would mean rich get $0.0 of the $2.36 trillion invested however it is unlikely that would ever pass. I have no problem with compromise if it helps the greater good. Any way you shake it raising the cap (even with rising benefits) would be a net $2.07 trillion redistribution of wealth from the rich to everyone else.

[MousePlayingDaffodil]

45. If the law were changed to the effect, then yes . . .

. . . but, the way the system is currently structured, benefits for high-wage earners would rise upon their retirement.

The "cap" on benefits is merely a reflection of the fact that the system itself, both in terms of the amount of annual wages subject to the payroll tax and the level of wages upon which benefits are calculated -- are subject to a cap.

[Romulox]

47. Naturally. nt

[MousePlayingDaffodil]

25. I don't think that's right . . .

. . . I'm not sure that your statement increased benefits would not apply as their level is already determined is correct.

As I understand it, the "maximum limit" on monthly benefits a person can receive under the system, as it is currently structured, is simply an artifact -- the "flip side," as it were -- of the wage/tax "cap" itself.

That is, as a general proposition, a person's monthly Social Security benefit is derived from a formula that, among other things, looks to that person's "best" 35 years of wage earning, subject to the wage/tax cap (for example, the "cap" for 2010 is $106,800 -- while my wages for 2010 will be considerably more than that, when the time comes for the Social Security system to calculate my benefits, I will only be given "credit" for having received wages in 2010 of $106,800).

Thus, if a person earned at or above the wage/tax cap for those 35 years, then that person would, upon retirement, receive the "maximum" benefit that he could receive.

Raise the wage/tax cap, and, under the system's current structure, the "maximum benefit" would increase accordingly.

[DrDan]

26. yeah - I think you are right . . .

[Romulox]

29. This is a bizarre argument. The entire concept of "Progressive Taxation" is "welfare" then...

As is the recent "Health Care Reform" bill. :hi:

[Statistical]

36. Then don't listen if it confuses you so much.

Everyone pays into SS. Everyone receives benefit from SS.

For the highest wages it is a small return (10% replacement income).
For the lowest wages it is a high return (90% replacement income).

Change that dynamic. Have people pay in more and get 0.0% return on that payment and it will be considered welfare.

This universal deduction, universal payment mechanism has made SS very popular and prevented even Republican majorities from changing it. It would be unwise to change that.

There are less drastic mechanisms to save SS.
http://en.wikipedia.org/wiki/Social_Security_debate_%28United_States%29#Proposals_that_keep_an_entirely_government-run_system

[Romulox]

37. You just have to perform the alchemy of making "Progressive Taxation" evil in one case,

but *essential* in the other. I'm not the one battling with cognitive dissonance here. :hi:

[DrDan]

7. are you suggesting a tax on the wealthier?

why do you hate America. That is not what made us great.

[Bitwit1234]

9. If they would stop stealing from it, it might be solvent any way

Saint ronnie started it all. When he gave the rich and corporations the big tax cuts he had to make it up some how and that's what he did..took social security money. After all those billions were burning a hole in the pocket of all those republican congress people.

[Statistical]

21. Nobody is stealing from SS.

The shortfall is not the same thing as borrowed money.

The shortfall assumes 100% of borrowed money is repaid and with interest.
Even if that happens there will be a shortfall and the fund exhausted by 2040.

So obviously all borrowed money will need to be repaid to SS.
We will no longer be able to borrow from SS start in 2016 (at that point expenses will exceed revenue for first time in 25 years).

Still even with full repayment there is still a shortfall. Something needs to be done to address that.

[Machineland]

31. can you....

please talk more on this point. As when I'm debating Republicans this topic sometimes comes up. About social security being busted. It would be interesting to know more about when this happened. Thanx

[LiberalFighter]

10. I've been saying for over 20 years that the cap should be eliminated.

[madrchsod]

11. yes it would....

[Jeff In Milwaukee]

14. Don't forget....

That the Social Security tax is a payroll tax. If your income is from interest, dividends and capital gains, you don't pay ANY Social Security taxes regardless of your income.

Tax Everything. A dollar is a dollar is a dollar.

If you raised the cap and taxed unearned income, you would not only make the system solvent, you would probably also cut the actual tax paid by up to a third (just a rough guestimate). So the people who have been gouged by this tax over the years would get a little relief.

[Statistical]

18. Are you going to raise the benefit level also?

Someone paying in a million dollars a year into SS. Are they going to get SS payments in the hundreds of thousands of dollars.

Saying "raise the cap" is meaningless unless you indicate what you will do with the benefit. SS is a investment program. You put money in. What you get out is based on what you put in.

Legal it is different (Congress can end SS at any point, change benefits, or alter payout with no recourse) than an annuity but technically it works the same way.

Changing SS so that caps go up but benefits don't go up would structurally change SS completely and remove that protection which has kept SS around for as long as it has.

[Jeff In Milwaukee]

52. No....

It has never been the intent that Social Security is an investment where you get out of it what you put into it. Social Security pays disability income to people who have never put one thin dime into the system. And it pays survivor's benefits to widows and orphans who have never paid in, and whose deceased parent or spouse may not have paid in. We need to disabuse the Fox News crowed that Social Security is their personal investment account. You want a personal investment account? Go the bank and open one.

[Romulox]

32. Any cap at all makes SS a regressive tax. Remove it altogether. nt

[customerserviceguy]

33. You'd also have to change the formula

for benefits. The cap on the SS benefit is directly related to the amount of FICA taxes the worker pays. If you don't mind lifting the top SS benefit checks by a factor of five, then a simple change to the law is all that's needed.