Social Security Taxable Wage, Conclusion

How much the taxable wage base rises each year depends on cost projections made by the Social Security Administration. They make three forecasts, one each for low, medium and high costs. The medium cost is forecasted to rise every year for almost the next decade. There are long term forecasts, but they are subject to change. One thing is for sure, it’s going to cost the work force more in the future to support the retired force.

The forecast predicts that Social Security will become insolvent in 2033-2035. The HI assessment and the Additional Medicare Tax have no upper limits. Doesn’t it make sense that the third piece of the income stream, the OASDI contribution, should have no upper limit? Why let high wage earners off the hook for contributing to the support of our nation’s elderly? The theory is that Social Security is not a tax but a mandatory retirement plan, and that the contributions are capped each year because the benefits are capped each year. Is it really not a tax? Can you go to jail for not paying?

A flat tax is oppressive in that it hurts the poor more than the rich. With OASDI, we have the case of a tax (or mandatory contribution) that is not just flat but actually regressive. A person who earns 118,500 in 2015 will pay $9,065.25. That is a rate of 7.65 percent, just what most people pay.

A person who earns $200,000 in 2015 will pay the same $9,065.25, on the first $118,500 plus 1.45 percent on the rest ($1,181.75), for a total of $10,247 or just about 5 percent of total earnings.

A person who earns $500,000 will pay 1.8 percent in FICA contributions, but when the Additional Medicare Tax is added in the total, it will be 2.9 percent of total earnings.

Finally, a person who earns $2,000,000 will pay .59 percent in FICA contributions but the Additional Medicare Tax will bring the total to 1.8 percent.

The FICA plus the Additional Medicare Tax percent keeps going down as more is earned, approaching less than 2 percent at very large income numbers. That’s regressive. That’s bad tax policy unless you buy into Social Security not being a tax.