New Administration & Social Security

[Calico]

Thanks. The thing I love most about SS is that nearly everybody who collects from it has to contribute to it or be married to somebody who does. If we cut off the spouses, they would simply be added to the welfare rolls. At least with SS somebody had to put some money into the system for a descent amount of time.

Several times, I have told the story about four older ladies I know who live together on nothing but their SS checks and the un-mortgaged home one of them owns. It's not an extravagant life, but it keeps them off the streets and off the welfare rolls.

Blanche, Dorothy, Rose, and Sophia?

 

[Markola]

I have never seen evidence that increased social security taxation rates are the cause of wage stagnation since the 1980s. I have seen data that, for the last 30-35 years, the vast majority of income from productivity increases has flowed to holders of capital rather than laborers. It is an ineluctable feature of our economy that capital will always pay labor the least amount that it can and labor will try to get the most it can. However, for the last 35 years (and often with the government's help), capital has had the upper hand in that contest. I don't see that any of that money paid to social security would have been paid to workers instead of being passed along to shareholders. And I'd say that holds for any tax imposed at the business entity level. If that tax is cut, the benefit almost never flows back to the workers, instead it flows to the owners.

Also, a lot of growth that employers would have paid to employees in wages has instead gone to their ever-inflating health insurance.

 

[Old Schwinn]

Donut holes are easier to pass the smell test. People in the donut hole (significant percent of the population) thinks that they are not affected with this legislation (until they realize few years later!) and don't complain/oppose. The outside edge of the donut hole is typically a small percent of the constituents and hence easy to shove those complains aside. Inside portion of donut hole is the safe zone. I think this is a classic trick for passing many bills into a law.

The possibility of this donut hole legislation was instrumental in my overcoming One More Year syndrome. So the threat of raising my taxes is going to result in one less person paying into the system at all, let alone to the Maximum. Taxes elicit market response that frequently result in far less revenue being collected than was forecast when the tax was enacted.

 

[gauss]

I would propose, we eliminate the payroll cap. At the same time we add a 3rd bend point in benefits at that level for those who would be affected? That way they get something from the fruit of their labor. And the net would be a positive for the masses.

Folks,

I have seen 3 posts by regular/respected posters here that seem to have a similar misunderstanding on current Social Security policy/law that applies to SS payouts for high income earners.

There is no cap on payout today. We do not need to add new bend-points to take care of high income earners -- the current bend-points will payout under today's law.

The only reason that we have a so-called "cap" on SS payouts is that there is a cap on wages that are subject to SS taxation and a maximum number of earning years that are considered in the payout formula . If we raised the cap on taxable SS wages, the high income workers would have larger SS payouts.

Please don't advocate new bend-points without understanding the mechanics of the current payouts. It will only enable the politicians to reduce benefits while making it sound like something else.

Edit:
Here is a link to a Social Security worksheet from a few years ago that you can manually walk through to see how the benefit was calculated in 2018. It is much more illustrative than a computer calculator IMHO.

Thanks
-gauss

 

[CRLLS]

Folks,

I have seen 3 posts by regular/respected posters here that seem to have a similar misunderstanding on current Social Security policy/law that applies to SS payouts for high income earners.

There is no cap on payout today. We do not need to add new bend-points to take care of high income earners -- the current bend-points will payout under today's law.

The only reason that we have a so-called "cap" on SS payouts is that there is a cap on wages that are subject to SS taxation and a maximum number of earning years that are considered in the payout formula . If we raised the cap on taxable SS wages, the high income workers would have larger SS payouts.

Please don't advocate new bend-points without understanding the mechanics of the current payouts. It will only enable the politicians to reduce benefits while making it sound like something else.

Edit:
Here is a link to a Social Security worksheet from a few years ago that you can manually walk through to see how the benefit was calculated in 2018. It is much more illustrative than a computer calculator IMHO.

Thanks
-gauss

Since you quoted my post, I feel it necessary to explain my post a bit better. The "payroll cap" I was referring to was the working person's income at which SS is no longer taxed; "Column A. Maximum earnings" in your referenced SSA pdf. In 2021 that max is $142,800. This effectively creates an "effective" cap on SS monthly monthly benefits.

Some proposals I have read suggest we simply remove the income level cap and continue taxing incomes above that $142,800. As you say, if everything else is left as is, it would eliminate the (effective) cap on benefits. Some don't feel that those people need or deserve benefits above the 2021 maximum benefit level of $3,148 at FRA. That "limit" would be kept and no additional monies be included in benefits. The devil is in the details as to how that law would be written. It could go either way.

One may or not agree with taxing income with no maximum. And if they are included, whether that higher average income should be included in the monthly benefit at a 15% level. My suggestions was there should be a compromise of sorts with no limit on income taxed and a much lower 4th level added, but not zero, benefit from that higher income starting at todays "maximum" income taxed.

I hope this comes out more clear.

 

[gauss]

Thanks for the clarification CRLLS.

Often when I see proposals for additional bend-points, it usually ends up with a good portion of my earnings that were in the 32% bracket being reclassified to a much lower percentage.

I guess I am personally sensitive to this. FWIW, DW and I combined are currently looking at ~ $85,000 / year in inflation adjusted SS benefits starting ~ 13 years from now.

-gauss

 

[CRLLS]

I get it. The hair on the back of my neck raises every time I hear the term "fair share" used in related to any new taxation. Who do they think already pays the lion's share? SS needs something to ensure it's continued success. If we are going to ask the income limit for SS taxation to be raised, we should at least give those affected people some small financial token of gratitude. Does someone with a $1,000,000 average annual income get an EXTRA >8,200+ dollars per month in his/her SS benefit? I really don't think so. Somewhere there needs to be a compromise I think.

 

[athena53]

One may or not agree with taxing income with no maximum. And if they are included, whether that higher average income should be included in the monthly benefit at a 15% level. My suggestions was there should be a compromise of sorts with no limit on income taxed and a much lower 4th level added, but not zero, benefit from that higher income starting at todays "maximum" income taxed.

Two sources that many people consider credible (Robert Reich and the Motley Fool) have stated indignantly that people who make over the SS cap aren't paying the SS tax on wages above the cap. Reich proposed applying it to 100% of wages in order to bolster SS. Neither noted that the current SS formula also does not count any wages over the cap in determining benefits, either.

And maybe the SS contribution over the current cap could be at a lower rate but still provide some small extra benefit above that bendpoint, as you suggested.

I pointed out to the friend on FB who posted the Reich video that he omitted a few facts and that it would be comparable to my saying that I was a widow, haven't worked for 7 years and have less than $100 in my wallet. All of which is true.