4 ms·

No, they really don't disproportionately fund Social Security. Quite the opposite, in fact. You only pay Social Security payroll taxes on the first $127,200 of

No, they really don't disproportionately fund Social Security. Quite the opposite, in fact. You only pay Social Security payroll taxes on the first $127,200 of your annual income. So if you make $250k, your payroll tax rate is effectively half that of someone making 125k (numbers rounded off here, don't nitpick). Details here: http://thehill.com/blogs/congress-blog/economy-budget/204996-scrapping-the-social-security-payroll-tax-cap http://thehill.com/blogs/congress-blog/economy-budget/204996... and https://en.wikipedia.org/wiki/Social_Security_Wage_Base https://en.wikipedia.org/wiki/Social_Security_Wage_Base

maxerickson 10y ago
$125000 is above the 90th percentile for individual income. People making that are doing pretty well in relative terms. I guess the cutoff for 'wealthy' is often higher than that though.
gregable 10y ago
That also misses the point since benefits are directly tied to lifetime contributions, not earnings. Double the cutoff and you would double someone's contributions. The feature that does make social security progressive it's the diminishing contribution to benefit ratio a lifetime contributions increase.
loeg 10y ago
Single income of $127,000 is 93rd percentile in the US. Given that, sure, the top 7% or 1% or the 0.1% don't fund SS proportionately (but they also do not receive higher benefits than the people at exactly $127,000). The article isn't really talking about the 0.1% or 1%, though, which is a tiny portion of SS payouts, but instead the top 20% or 40% (top quintiles).
mdorazio 10y ago
You realize the median income in the US is about $52k, right? For an entire household. The SS tax cutoff is more than double that for an individual earner. So yes, they really do disproportionately fund Social Security, even with the cap. They just don't fund it in direct proportion to total earnings.
khuey 10y ago
The benefits received compared to income taxed slopes downward pretty dramatically within the range of income that is subject to FICA taxation. The Primary Insurance Amount is currently 90% of the first $885/mo, 32% of the next $4451/mo, and 15% of the amount above that. So Social Security will replace most of a low-income person's income during retirement (and it's also tax free for those people) but will replace a much smaller proportion of a higher income person's income despite the latter having paid more taxes to fund SSI.
- zacharytelschow 10y ago
  This is what people don't understand. Though the contributions may happen at a flat rate, the payouts are highly progressive. While the rich may get out more in absolute terms, on a per month basis it isn't much more and they still will have a worse ROI on SS than the poor will.
jeffdavis 10y ago
Let's say you have 3 people: one who makes 50K, another 125K, and a third who makes 250K. Let's also assume SS tax of 7% on first $125K. The first pays $3500 per year in SS tax, the second pays $8750, and the third $8750. But each one gets the same SS benefit (assuming same number of working quarters and lifespan). You are right about tax rates, but those rates don't affect the benefit. The article makes the point that lifespans are not equal, which tilts the SS program in the regressive direction. But (unless I misread the numbers), SS is still a progressive system overall.
- loeg 10y ago
  Someone earning $50k does not get the same annual SS benefit as someone earning $125k. Unless you are adjusting for expected lifespan?
  - jeffdavis 10y ago
    You're right, though it does not appear to be linear. I could swear that it didn't work that way before -- did somethibg change?
    - loeg 10y ago
      I'm not aware of any previous model, although I've only been paying attention to Social Security for a couple years.

maxerickson 10y ago

$125000 is above the 90th percentile for individual income. People making that are doing pretty well in relative terms. I guess the cutoff for 'wealthy' is often higher than that though.

gregable 10y ago

That also misses the point since benefits are directly tied to lifetime contributions, not earnings. Double the cutoff and you would double someone's contributions. The feature that does make social security progressive it's the diminishing contribution to benefit ratio a lifetime contributions increase.

loeg 10y ago

Single income of $127,000 is 93rd percentile in the US. Given that, sure, the top 7% or 1% or the 0.1% don't fund SS proportionately (but they also do not receive higher benefits than the people at exactly $127,000). The article isn't really talking about the 0.1% or 1%, though, which is a tiny portion of SS payouts, but instead the top 20% or 40% (top quintiles).

mdorazio 10y ago

You realize the median income in the US is about $52k, right? For an entire household. The SS tax cutoff is more than double that for an individual earner. So yes, they really do disproportionately fund Social Security, even with the cap. They just don't fund it in direct proportion to total earnings.

khuey 10y ago

The benefits received compared to income taxed slopes downward pretty dramatically within the range of income that is subject to FICA taxation. The Primary Insurance Amount is currently 90% of the first $885/mo, 32% of the next $4451/mo, and 15% of the amount above that. So Social Security will replace most of a low-income person's income during retirement (and it's also tax free for those people) but will replace a much smaller proportion of a higher income person's income despite the latter having paid more taxes to fund SSI.

zacharytelschow 10y ago
This is what people don't understand. Though the contributions may happen at a flat rate, the payouts are highly progressive. While the rich may get out more in absolute terms, on a per month basis it isn't much more and they still will have a worse ROI on SS than the poor will.

jeffdavis 10y ago

Let's say you have 3 people: one who makes 50K, another 125K, and a third who makes 250K. Let's also assume SS tax of 7% on first $125K. The first pays $3500 per year in SS tax, the second pays $8750, and the third $8750. But each one gets the same SS benefit (assuming same number of working quarters and lifespan). You are right about tax rates, but those rates don't affect the benefit. The article makes the point that lifespans are not equal, which tilts the SS program in the regressive direction. But (unless I misread the numbers), SS is still a progressive system overall.

loeg 10y ago
Someone earning $50k does not get the same annual SS benefit as someone earning $125k. Unless you are adjusting for expected lifespan?
- jeffdavis 10y ago
  You're right, though it does not appear to be linear. I could swear that it didn't work that way before -- did somethibg change?
  - loeg 10y ago
    I'm not aware of any previous model, although I've only been paying attention to Social Security for a couple years.