If you want to view it that way, sure. I don’t think benefits can be separated from collection in this way. You have to look at both together. If everyone got back exactly what they put in, it would be flat. If the benefits go down as income goes up, it’s progressive.
Naw…it is overall a regressive system.
The combination of the wage cap and exclusion of investment income means that effective tax rates decline significantly as income rises above the cap. While the Medicare portion adds some progressivity at high incomes, the dominant OASDI (Old-Age, Survivors, and Disability Insurance) portion’s regressivity outweighs this.
The regressivity is most pronounced when comparing middle-class wage earners (who pay 6.2% on all income) to very high earners (who may pay less than 1% when investment income is included).
This tax regressivity is intentional - Social Security was designed as a social insurance program where benefits are linked to contributions, not as a pure redistributive tax.
The problem with considering collections from benefits separately is that, as DMC said, you end up with “benefits are progressive while collections are regressive.” And that tells you nothing about the overall transfer.
SS as currently structured is a mildly progressive transfer from rich to poor. That isn’t eliminated as you reach the 1%er, 0.01%er, etc. They still pay more than they get out, and the poor get out more than they pay in.
Well, the second part of this is essentially what I said already. It’s just that I would call small levels of redistributivity slightly progressive, not regressive.
Well…ISTM (bolding mine):
That is the opposite of a progressive tax.
It’s not how I want to view it, it’s how it’s actually defined.
A tax system that is progressive applies higher tax rates to higher levels of income.
A progressive tax involves a tax rate that increases or progresses as taxable income increases.
A progressive tax is a tax in which the tax rate increases as the taxable amount increases.
A progressive tax takes a larger percentage of income from high-income groups than from low-income groups and is based on the concept of ability to pay.
You are technically correct. The best kind of correct. (I would dispute that FICA is even a tax, but the Supreme Court disagrees, so whatever)
Still, that doesn’t contradict anything I said. The collections are regressive. The system as a whole is progressive. I’ve always been clear that I was referring to the whole system.
If I am reading what you mean correctly you are comparing how much someone puts in to the system and how much they get out before they die.
Some people will put in to the system and die before they ever collect a dime. Some few will have barely put in and collect to very old ages. And all the possibilities in-between.
I would suggest wealthy people tend to live longer than poor people on the whole (better healthcare, probably a better and more healthy lifestyle).
Bill Gates is collecting SS. Did he put in more than he collects? Probably not since his payments to SS were capped. I assume he is getting the most possible from the system. But both his contributions and what he gets are a pittance to his overall wealth.
Does that mean Joe Welfare is getting more in SS payments than he paid in? I am not so sure.
I am missing the redistribution of wealth part that would make this a progressive tax.
ETA: Sorry I messed up the quote box above. Fixed.
It certainly gets more complicated when you consider lifespan. And I’d agree that that imposes a moderately regressive component.
But benefits dwindle quickly as income goes up. You get 90% of the first $1,226 of your “Averaged Indexed Monthly Earnings”. Then 32% up to $7,391. Then 15% after $7,391 (up to the cap). No way that high earners are getting anywhere close to what they put in even accounting for lifespan.
People above the cap in 2025 are putting $21,836/yr into the system (they pretend it’s only 6.2%, but the employer pays another 6.2%, so it’s really 12.4%). The earnings limit for full retirement age is $23,400. So you’d have to live nearly as long after retirement as your working years to get back more than you put in. Could happen if you lived to 100, but that’s not a sure bet for anyone, rich or not.
No, people are only putting 6.2% into the system. Yes, their employers pay an additional 6.2%. No, everyone wouldn’t automatically get a 6.2% raise if their employers suddenly didn’t have to pay any more. That’s just not how compensation levels work. So, people at the top are currently paying $10,918.20 per year towards Security. Your math seems to assume that they paid this amount every year, when in reality the cap changes every year. I’ll let that slide or you’ll just move the goalpost again and start talking about inflationary impact. Even if we work with that assumption that I paid almost 11K every year, if I was over the cap in earnings for the 35 years that I was employed and then retired, I’d have paid in $382,137 total. If I then waited until 70 to start collecting (which is what I’m doing personally) and turned 70 this year, my monthly payout would be $4,018. In 95 months, or roughly 8 years, my payout would have passed the amount I paid in. Not only wouldn’t I be 100, I wouldn’t even have hit 80.
With all of that said, it has nothing to do with your statement that I challenged. The SS tax is not progressive. Period.
Nonsense. I mean, it’s literally true since people hitting the cap aren’t paying the full 6.2%, and people making minimum wage might not get anything unless the MW was adjusted to compensate, and there are many frictional elements in the economy that mean it isn’t going to instantly go to raises for everyone. But over the long term and averaged over the whole workforce, that money would go toward higher compensation.
And of course self-employed people would not be affected at all since they already pay the hidden taxes.
In any case, it’s irrelevant. 12.4% of the adjusted income per person is what’s going into the system. Whatever that number is, that’s how much they can afford to pay out in the long term.
It was just a rough ballpark. COLA is inflation tracked while the cap is tracked to average earnings. Over 50 years the difference amounted to 11.2x vs 16.3x, which is not a huge difference for any kind of compounding increase.
But aside from that, the changing cap can be ignored. Benefits go up by roughly inflation and the cap goes up by roughly inflation.
Independent of what you think about how salaries would change if the hidden FICA portion was changed, it’s still true that $22k would be collected on your behalf if you hit the cap in 2025. You don’t get to pretend that this money isn’t going into the system. So “you” in the broad sense, paid $770k into the system (in adjusted dollars).
Also, most people don’t start working at 35, which is what you’d need to happen to hit the minimum 35 years but retire at 70. That’s possible but most people are going to be paying for more years than that. Not necessarily at the cap, though.
So a more typical well-off person that started hitting the cap early in their career probably put nearly $1M in adjusted dollars into it. And then can take $5k/mo out. Which pays for ~17 years, which gets you to 87. If you retire at the “normal” age, it’s more like 67+21=88. Which, fine, is not 100, but is well above the life expectancy in the US, which is ~78. So a typical person (especially male) hitting the cap is paying much more than they’re getting.
So, in the end, FICA is not progressive.
Thanks!
Most of the grief Gore got was because he would say “lockbox” in the same manner Forrest Gump would say “box of chocolates”.
Ninja’d…^this^ is what I was going to say. I recall his repeated use of the word ‘lockbox’ was ridiculed, not so much the concept of it. He tried to make it a catchphrase and it backfired on him, kind of like the Howard Dean scream.
That’s because in his debates, Al often sounded like Forrest Gump in general, which is odd considering that he was born and lived a large bulk of his life in DC and went to a privileged prep/boarding school in DC. I’d halfway expect him to have a more “refined” or at least neutral accent.
I’m not going to recapitulate the argument above about SS because I think it totally ignores the important underlying points that become obvious once you stop seeing the two part name - Social. Security. - as mere marks rather than the explanation for the system’s existence.
SS was implemented during the depths of a depression that saw trusted institutions fail. It deliberately included elements from savings accounts, insurance, and pensions, but without their uncertainties, thus security, and took the stigma out of government handouts by tying it to a tax. People may have hated taxes but looked forward to their outcomes, which went to all people, thus social.
The popular conception was that payees would be getting their money back, presumably with interest or inflation considered. No matter how many times this was explained as not the way anything worked, the notion lingered. The payments come from the current federal money slosh, calculated by formulas of some complexity. The system, again, is neither exactly progressive or regressive but has elements of each.
What’s critically important is that the system be perceived as fair. True fairness is never reachable, any more than infinity, but the Social part of SS demands that the majority of payees see their bit of society as not being slanted toward a special group. The treatment of higher income individuals has for decades been seen as slanted in their favor. Absolutely correct. In a better world no cap on FICA would exist, but a cap on payments would.
How is this fair? If an elderly individual depends on SS for 80% of their income, then an extra $1000 can be the difference between having medicine or not. High-income individuals would not see their lives change even with an extra $100000 because that is not even 8% of their income. Life and death. Social. Security.
An excellent explanation. From an era where everyone could see everyone was hurting, so everyone needed helping.
Fast forward to now and all 3 of those things are no longer true. The miracle to me is that the system hasn’t already been gutted. Not that it should be, but rather that American politics hates the very idea of “social”.
My own view is that SS is on very shaky political ground and any badly done tinkering will fatally torpedo the popular support for it. Then it wobbles and crashes over just a few years; 20 tops.
The odds that badly thought through, or actively malicious, tinkering occur soon are rising inexorably IMO.
This is why I’m against a means test for SS benefits. In many people’s eyes, it would turn it into a welfare program, which would make it easier to restrict or eliminate.