Jun 12, 2015

Effect Of Eliminating The F.I.C.A. Wage Base Cap

     If you've been looking for an actuarial study of the effect of eliminating the cap on wages covered by the F.I.C.A. tax and allowing those extra wages to be considered in determining Social Security benefit payments, Social Security's Chief Actuary has you what you need. See the table below but note that the proposal would also change Social Security's COLA to the CPI-E index. The "E" is for elderly. That change would increase the COLA. Eliminate consideration of the additional wage base in benefit computations and stick with the current COLA and the Trust Fund reserves stay in balance almost as far as can be computed.


Anonymous said...

A sensible, fair and affordable solution that eliminates the funding problem and preserves Social Security for the foreseeable future. Why then do I suspect that Congress will avert its gaze from it like a rich person walking past a homeless person on the street?

Anonymous said...

Expanding the wage base will raise more dollars for the Treasury's general fund
The trust fund is empty for it is used as an indirect way to pay for other expenses through loans to the Treasury

Anonymous said...

Agree with 10:09. Why raise taxes AGAIN (like they did in the 1980's) then take the surplus for other "programs"? Then, when SSA says they need the IOU's paid back, Congress tells them they are paying too many cases, etc. Biggest theft in American history. Ever wonder why the only program that people are ACTUALLY ENTITLED to is the only federal program under attack?

Anonymous said...

I'm all for taxing the wealthy, but I think it should be done by increasing income tax rates at higher incomes. The top marginal rate was over 90% starting in WWII and continuing into the 1960s (with a few years between 80-90% after WWII). It was 70% until 1980, which I think is a reasonable rate.

Social Security can be funded by modestly and gradually increasing the payroll tax rates, when necessary. Real incomes tend to increase over time, and this increase is expected to dwarf that needed for Social Security, so workers should still be better off than workers today.

I don't agree with the posters that state that the trust funds are empty. They hold Special Treasuries, which are as good as cash in my book (better, since they pay interest). I don't think the trust funds should be made to decrease gradually until they reach a level that gives a 100% Trust Fund ratio, and then kept at that level. This keeps all the Social Security money in Social Security (so there is no "theft"), but would not require selling huge amounts of Special Treasuries (because the denominator of the Trust Fund Ratio will increase over time).

Anonymous said...

Special Treasuries are an asset to the trust fund and a liability to the Treasury
From a government wide perspective these 2 numbers create a wash
So the special Treasuries are equal to zero
Zero times any interest rate is still zero

Anonymous said...

Special Treasuries are an asset of Social Security, and can be used to pay benefits when payroll taxes are insufficient. It is true that Treasury must redeem the Special Treasuries, just as they do with regular Treasuries that mature. If surplus payroll taxes would not have been available, Treasury would have sold more regular Treasuries, which would have to be paid back just as Special Treasuries must.

Of course, the US Government could decide not to honor its obligation to repay either Special or regular Treasuries. I think that is highly unlikely, and until there is some reason to believe it will, I think it is wrong to say the Trust Fund doesn't exist or has been stolen.

The situation with the DI Trust Fund is not a case of the gov't refusing to honor Special Treasuries. It is that the DI Trust Fund is running out of Special Treasuries. That could (and should, in my opinion) easily be fixed by a transfer from the OAS Trust Fund as has been done before.