Question about Social Security cap

[Kurt_and_Hunter]

I think I know this, but...

You make 200K/year. If cap was lifted you would pay in 6% of $200K.

Are your eventual benefits increased fully commensurately?

[Romulox]

1. Obviously not. That would defeat the entire purpose. nt

[Kurt_and_Hunter]

2. Not obviously

That could be the case but it's not obvious.

My recollection is that raising the cap makes the system solvent for a long, long because it gooses the amount of money coming in *today* to cash-flow cover the baby boomer hump, but that the extra pay-in resulted in extra pay-out... but decades down the road..

(That is what the Obama people were arguing during the primaries when Hillary was criticizing it. I accepted the argument at the time but want to check.)

[Romulox]

4. No. Any change to the cap formula will require new legislation.

So to speak of the consequences as to the existing formula is not very useful. In other words, lifting the cap will require new legislation; that self-same legislation will, by necessity, not allow for the present pay-out formula to apply to high earners. Why? Because allowing these payouts will obviate the entire purpose of the change.

So, yes, it's obvious. And as to what Obama was arguing about during his campaign? Not terribly relevant to any of his present policies, so...meh. :shrug:

[Statistical]

5. No it wouldn't defeat the purpose to raise benefits with the cap.

The current formula is progressive. Any wages above $4586 monthly are returned at only 15 cents on the dollar. Thus by raising the cap the person contributions go up a full dollar but benefit goes up 15 cents. Benefits go up but at a much smaller amount than contributions; the difference adds to solvency of SS.

Now you are right it is entirely possible that they change the formula (maybe making a 10% or even 5% bracket). It should be stressed that it isn't required that they change the formula and SS would be more progressive and more solvent with no formula change and raised cap. Keeping formula the same may be a compromise to get 60 votes. I doubt Congress they would cap benefits and raise cap on contributions. Why? It would turn SS into welfare and it would be crippled within a generation.

[Romulox]

10. The "welfare" argument is bizarre, given you've just trumpeted the "progressive" formula

There is no conceptual distinction between a "progressive" formula and the "welfare" (sic) to which you allude--the formula will simply have to be made more progressive. If it the result is "welfare", what we have now is similarly, "welfare", for, as you admit, the rich get lower returns from wage contributions than do lower earners ("socialism"!!!!). :hi:

[Statistical]

12. Even if the system is made more progressive then benefits would go up.

It may only go up by 15 cents on the dollar (based on current formula) or 10 cents on the dollar or 5 cents on the dollar but it would go up.

Which is the question asked by OP.

While yes poorer people get higher ROI on SS than richer people do the fact that all people benefit (at least minimally) based on the on their contributions has kept SS universally popular and thus has protected it for 75+ years.

Raising contribution and provide no return on those contributions is nearly useless.

The "rich" make up maybe 2% of the population and already only get 15 cents on the dollar for benefits above $4586 in monthly wages. Thus capping benefits for the rich would provide a neglible improvement to SS outlays (<1% if that) which providing a very powerful argument to privatize or allow people to opt-out.

Simply raise the cap, and add a new bracket. Benefits go up for the rich but their contribution goes up by 20x their benefit. Win-win.

[Romulox]

14. That's patently not true.

"It may only go up by 15 cents on the dollar (based on current formula) or 10 cents on the dollar or 5 cents on the dollar but it would go up."

The idea that no formula may be arrived in which the rich are made to pay more but in which their benefits stay the same (or even decrease!) is silly, and not worth arguing.

[Mimosa]

3. The cap should definitely be lifted. n/t

[dkf]

6. Right now what you get in benefits correlates to how much you contribute.

If they lifted the cap and did not raise benefits that would break that relationship and for those who don't get any benefit out of the extra amount it would be a tax like any other. If that happens it opens up social security to any type of payout relationship because turning it into a taxing vehicle for top earners makes it possible for all.

The problem is that now some want to pay social security taxes because they see it as a retirement fund. But you could conceivably retire and get nothing for your contributions if it is a simple tax. That would lead to politicization of the social security tax. When is the last time we heard an outcry about social security taxes being too high? Compare that to the last time you heard complaints about taxes?

Telling people they will get something directly in proportion to what they paid in stops the complaining. If you break that then there is not much incentive to pay in if you don't have faith in it's solvency or in the eventual return. Also this would give great impetus for privatization which would guarantee a benefit based on what you put in.

[MannyGoldstein]

7. Benefits have already been increased for that group.

The well off live longer than others in the US (3-5 years, if I recall correctly), so not only do they receive larger Social Security checks, they receive them for a longer period. Lifting that cap somewhat would help the better-off to pay there fair share into SS, to compensate for the extra years they take out.

[Statistical]

8. Yes (unless changed) however the benefit formula is already progressive.

Currently the cap is $106,800. The cap is indexed to average wages so it goes up each year (but not necessarily at rate of inflation).

The benefits for 2010 are based on the following formula.

Calculate average pay over top 35 years (adjusted for inflation and subject to cap each year)

Then compute monthly average pay over your entire lifespan.

1. Multiply the first $761 in Step 4 by 90%. . $__________________
2. Multiply the amount in Step 4 over $761 and less than or equal to $4,586 by 32%. . $__________________
3. Multiply the amount in Step 4 over $4,586 by 15%. $__________________

The sum of 1 + 2 + 3 is your retirement benefit on year 0 (at full retirment). Each year after that it is simply adjusted for inflation.

As one can see any wages above $4,586 are returned at 15 cents on the dollar making the system very progressive.

[sinkingfeeling]

9. What would happen is that the full $200K would be used in the 'average earnings'

calculation for eventual benefits. Today, if you earn an income of $200K, only $106,800 would be used in the 'average earnings' calculation, because you would pay the tax only on $106,800.

[Gaedel]

11. Social security benefits

When you begin drawing Social Security, you monthly benefit is computed based on a formula of your social security wages over your "high period" which (I think) is now the highest thirty-five years of earnings.

Increasing the social security ceiling for taxes will, in time, lead to an increase in benefits paid, but the immediate effect will be substantial inputs to the "trust fund" which will vastly outweigh the immediate increase in benefits. The piper doesn't have to be paid till well down the track.

[Kurt_and_Hunter]

13. Thanks all. I was double-checking something before posting an OP about the cap.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x8999059