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Jun 14, 2012

Eliminating The F.I.C.A. Cap Would Solve Social Security's Long Term Financing Problems And Would Affect Few Americans

     One proposal to eliminate the long term financing problem for the Social Security trust funds is to eliminate the cap, currently $110,100, on earnings covered by the F.I.C.A.tax that supports the trust funds. The Center for Economic and Policy Research (CEPR) has done a study on who would be affected if this becomes law. CEPR also studied an alternate proposal to raise the F.I.C.A. cap to $250,000. The alternate proposal would not completely eliminate the long term financing problem but would dramatically reduce it. The CEPR gives figures for various demographic groups and for each state but the chart below shows the gist of what the study found -- only a small percentage of the population would be affected by increasing the cap to $250,000 and only a tiny additional percentage would be affected by lifting the cap altogether.

     The cap on the Medicare portion of the F.I.C.A. tax was eliminated years ago. It wasn't even particularly controversial then. Why should eliminating the F.I.C.A. cap be that big a problem now?

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  • 12 Comments:

    Anonymous Anonymous said...

    I think raising the cap to $250k is appropriate. I think it would be unfair to have no cap because then the highest earners would basically be paying tons of taxes just to cover shortfalls without getting a fair return on that taxation. That would make social security appear to be some form of welfare which is a dangerous road to go down.

    I think raising the cap to $250k is the way to go. Doing this, in combination with greater focus on integrity such as CDRs would save significant funds. Doubt the money for CDRs will be there but the $250k cap is a reasonable expectation.

    6:24 AM, June 14, 2012  
    Anonymous Anonymous said...

    i fall in the range of salary that would be affected.

    I'm OK with a raise in the FICA cap...but would expect some sort of quid pro.

    Doing away with child SSI and funding automatic (meaningful) CDR's or putting concrete limitations on benefit duration would be a good start.

    7:20 AM, June 14, 2012  
    Anonymous Anonymous said...

    Now you are the one trolling. That study does not show that eliminating the cap solves the funding issue, it only describes population who would be affected by the removal of the cap.

    If you are going to make such a credulous assertion that fixing SS funding is so easy, back it up with proof.

    8:21 AM, June 14, 2012  
    Blogger Social Security News said...

    http://www.epi.org/publication/webfeatures_snapshots_20050217/

    8:59 AM, June 14, 2012  
    Anonymous Anonymous said...

    SSI child disability payments have nothing to do with FICA or Social Security. They are financed out of general revenues, not the FICA tax. While I agree that these payments should be curtailed or at least placed under pretty serious scrutiny, including this program in a discussion about Social Security solvency is irrelevant to the subject.

    9:37 AM, June 14, 2012  
    Anonymous Anonymous said...

    Charles, I looked at the link from 2005. However, since that was written, the FICA tax has been reduced and the economy has gone south. Are the same assumptions and conclusions still applicable?

    9:40 AM, June 14, 2012  
    Anonymous Anonymous said...

    If they raise the cap are they going to raise the max benefit amount as well? I don't want to pay more just to pay more. I fall into that tiny additional percentage.

    9:40 AM, June 14, 2012  
    Anonymous Anonymous said...

    Anonymouse 9:37, you said, "They are financed out of general revenues, not the FICA tax." And just where do you think they get the general revenues from? They borrow from the FICA income and that is the primary reason there is no true trustfund.. Duh.

    10:44 AM, June 14, 2012  
    Anonymous Anonymous said...

    Why should eliminating the F.I.C.A. cap be that big a problem now?


    My answer is republicans's concern for the wealthy staying wealthy.

    Comment 7:20 AM, June 14, 2012 is also interesting. Collection of taxes protect the us society. So eliminating benefits when they are clearly due seems illogical to me.

    1:52 PM, June 14, 2012  
    Blogger Nobbins said...

    It's a given that a lifted F.I.C.A. cap would not include an increase in benefits for those above $110,000. At least, not at a 1:1 ratio.

    I'm actually all for no cap, with heavily reduced returns for those makingn $250,000.

    Keep in mind, most millionaires don't have a W-2 at the end of the year that says "I earned $2million in wages this year." It's net asset worth, dividend returns, stock appreciation, etc. This won't hurt them in the least.

    11:37 AM, June 15, 2012  
    Anonymous Anonymous said...

    Nobbins:

    I don't believe the appropriate test should be whether it would hurt or not, I think it should be what is fair and equitable. Obviously deciding what is fair and equitable is an entire issue unto itself.

    If we use the it won't hurt test, why don't we just make anyone making over a million a year, or having in excess of 10 million dollars forfeit the excess to the government. I don't imagine that would hurt them very much. It would, however, be a big disincentive to trying to succeed.

    2:05 PM, June 15, 2012  
    Anonymous Anonymous said...

    http://www.urban.org/UploadedPDF/412574-Age-Disparities-in-Unemployment-and-Reemployment-During-the-Great-Recession-and-Recovery.pdf

    2:33 PM, June 15, 2012  

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