If the withholding cap was raised to 250k, how mcuh could the % withheld be reduced, and keep the $$$ the same? Also, how much longer would SS be solvent under that scenario?
Based on the 2009 tax statistics from the IRS, and making a few assumptions, I make it around 3.6% if the cap is $200,000 (instead of $250,000).
The problem is, the numbers treat joint returns the same as individual ones, so I am not sure how accurate this is.
Do you envision a bump in benefits for those who would be contributing more to SS or no? That would affect the numbers.
JX-I’d envision them getting less. Which raises another question: Why isn’t SS means tested? Every other part of the safety net is.
SS was originally conceived as an “earned right”, the rationale meaning that if you made it just a program for the poor, there would be more incentive to tinker and abolish it in the future (once the Depression had faded into memory). From the 1935 report describing the vision for the program:
Although not specifically means-tested, as part of the 1983 SS legislation Congress made benefits subject to taxation for the first time. Currently 50% of SS benefits are taxed on income below $34K ($44K for married filers), and 85% of benefits are taxed on incomes above this threshold. This taxation is a de facto means test.
Don’t remind me - when I did my taxes for my parents, one year my father was receiving Social Security while my mother was putting money into an IRA while being in one of those income zones where you can deduct part but not all of it, and I had to work out how to calculate the IRA deduction based on how much of their Social Security was taxable - but in order to calculate the amount of taxable Social Security benefits, I had to know how much of an IRA deduction they could take.
If I am reading the current instructions (Publication 590) correctly, the rule is, you calculate the amount of Social Security income that is taxable first, based on what your IRA deduction would have been if your taxable Social Security amount was calculated under the assumption that you had a zero IRA deduction, and then use that to calculate your actual IRA deduction.
Here is one analysis.
There’s already a cap on SS benefits. That’s why there’s a cap on contributions.
The other thing with means testing SS is that it disincentives saving for retirement. If I can spend 100% of my take home income now, pay social security tax, and get a SS payment later, that sounds like a better deal than if I spend 85% of my income, save 15% for retirement, pay into social security, and don’t get SS later.