Social Security is funded by the contributions you and your employer make by way of FICA taxes. When the Greenspan Commission recommended its modifications in 1983, the intention was that base from which earnings would be taxed would include 90% of the total income among the nation's wage earners. To insure that the Social Security taxes would not exceed the tax base intended, a cap was imposed so that once an earner reached the cap in a given year, that wage earner would no longer pay the Social Security tax on any earnings exceeding the cap.
The rate employees currently pay into Social Security is 6.2% on wages earned, up to a cap of $110,100 (reduced a bit for the years 2011 and 2012 due to the temporary tax holiday).
Thus, once a wage earner's income exceeds the $110,100 in a given year, that earner stops contributing to the Social Security fund. Therefore, it stands to reason that if more income is funneled up to those making more than $110,100, at the expense of those earning below the cap, less money is available to be paid into the Social Security fund.
That is precisely what has been happening.
The result of the nation's growing income disparity has altered the Greenspan expectation that 90% of income would stand as the tax base for Social Security contributions to our current circumstance whereby only 83% (or less) of income is being taxed for the Social Security fund as more money flows into the pockets of those earning more than the cap.
This from the Congressional Research Service:
"Since the 1980s, the share of covered workers below the taxable earnings base has remained relatively stable at roughly 94%. However, the share of covered earnings that are taxed has fallen from 90% of all earnings in 1982 to 83% in 2007. The large declines in the late 1990s were mainly because salaries for top earners grew faster than the pay of workers below the cap."
What we see is yet another example of how the long-running stagnation in workers' wages has wrought real damage on even-unexpected elements of the American economy. It is not only a matter of workers having less money at their disposal to support our consumer-driven economy. We now see that stagnant wages have reduced the contribution levels going into the Social Security Trust as upper-level earners avoid the tax on a huge portion of their income.
I should point out that this result of crushing income inequality does not have the same effect on Medicare due to the fact that the tax we pay toward Medicare applies to all earnings with no caps. Thus, a dollar of income is being taxed for Medicare no matter whose pocket has possession of that dollar.
So, what do we do about this?
One would hope that at some point in our imaginary future, employers will recall the lessons of the past and see the folly of putting too much of the income into the bank accounts of only the top earners. But if that is not in the cards, and I doubt that it is, the time may have arrived to remove the caps on Social Security contributions in order to raise the tax base to the level that was intended.
The Congress of 1983 -- a Republican-controlled Senate and Democratic House -- would have understood this and made the necessary adjustments.
Can we expect the same from the 2013 version of Congress?
I don't know about you, but I do not plan on holding my breath.
More from Forbes.com:
VIDEO ON MSN MONEY
Another thing that annoys me; the politicians keep calling social security an "entitlement". We paid into that fund our whole working lives; its not an entitlement paid out of the general fund!
"Entitlement" is what these politicians receive when they leave office! (Lately, their pay is an entitlement they have not earned.) They treat themselves very well. Does anyone out there know what the legislators earned in the beginning of our government?
Being a legislator wasn't meant to be a career. All of their compensations and perks are actually unconstitutional.They cannot enact law that only benefits themselves and not the general public. No more than the President and the legislature has accomplished in the past few years makes them grossly over- paid!
The article may be partially true. I think the real problem may be due to the fact that Congress has "borrowed" $2.7 trillion (yes, trillion) from the Social Security Trust over the years to pay for pet projects. I won't use the word "steal" since those loans are backed by Treasury Notes. Whether or not those Notes are worth the paper they're written on, is another story.
We need a law prohibiting Congress from taking any more money, and to actually start re-paying the money taken in the past!!!
I paid in 40+years....
What makes me mad is to see American SS funds...
Being handed out to ILLEGALS from Mexico...
Currently a kid with attention defecit disorder is eligible to receive $648 per month from Social Security for this "disability". Unless extreme and coupled with an additional diagnosis, I do not believe attention deficit is a true disability. Yes, it may be a pain in the a$$ for parents and teachers, but why should they take money from me and give it to them. They shouldn't. The interesting part is the number of kids who meet this broad criteria and their parents get paid.
As a former family investigator for the state, the number of impoverished families with multiple other problems (drugs and cultural) whose children recieved this $648 per month for this "disability" was staggering. When removing a child from the home due to abuse or neglect by the parent or guardian (the $648 SS follows the child) you would not believe what family members do to try to get that child (and their $648 per month) to live with them. It is appalling. It is as if the child -- who cares -- but the $648 -- Oh we'll take care of the child!
I am sure the intent of the lunatic who came up with this solution was to get medical help for the attention deficit disorder, ie. prescriptions, extra tutoring... any type of help. However in every home I witnessed, it was being spent on anything and everything EXCEPT the poor child with the adhd diagnosis. They still wore rags, were still trampled on, no medication to control the problem, no doctor visits.... (as well as Medicaid was usually in the bag too and they could've gotten doctor and RX for no cost to them). The child's ss income of $648 went to buy booze for the momma's boyfriend at least a lot of the time. This I can personally testify for.
If the public were only aware of the staggering number of children who receive $648 per month for this (and also receive no real benefit due to the parent's further abuse), they would understand exactly why the Social Security Fund is going broke. I only know that almost every family I encountered, all from reported child abuse or neglect, was receiving SS payments for one or more children. The parents are doing a poor job of managing the home or they wouldn't have reports of abuse (with rare exceptions), and giving the parents control over $648 PER MONTH does not automatically make that parent capable. It just gives them a party fund. That's the facts.
look in the SSI lockbox that where the politicians said the money was stored - one way to fix SSI is have politicians on the same plan as the masses.
Some of you dummies new to do research before you open your mouth !!
1.Roosevelt signed the Social Security Act on August, 14 1935.
2. I paid into this system for 56 years ( not by choice)
3. My employers paid in a equal share. ( Payroll tax)
4. My employer used his contribution in to system to calculate my retirement.
5 I pay tax on Social security ( based on Earned income.)
6. After 56 years i still pay into social security.
7 I pay in to medicare (medicare only pays a small amount , the doctors get screw for the difference.
8. I pay $98.50 each month from my social security check for this insurance.
9. I buy addition insurance to pay the 20 % that medicare doesn't pay
10. between medicare and supplement insurance i paid $ 8642.00 for health insurance in 2011.(wife and I)
11. I paid double tax on Social Security for 56 years. ( social security not a deduction)
12. Johnson gave the money away.
13 Wall street wants to manage it and steal it, like every thing else they screwed up
Wake the hell up we need a to flush out the brainless Politians in Chrome Dome
You create a retirement fund, based on tax-payer contributions, made up of funds that are supposed to go into a blind trust. Over time you move more and more of these funds out of this blind trust and into the general fund where they are promptly spent on everything no reasonable American would want, like all these endless wars, and then you lie about it.
You create public and private pensions and then raid and "under-fund" these plans until they too are bankrupt, and then you lie about it.
You create phony private pension plans like the 401K and IRA, and then you let Wall Street and Wall Streeters raid these plans until their value falls to nothing, and then you lie about.
These are not the actions of an irresponsible government, greed and avarice, but criminal wrong doing on a scale larger than any fraud ever perpetrated ever on a free people anywhere. This is the truth. And you continue to lie about it.
The expression on her face couldn't get much more contorted...lol. Fun aside, I'd suggest that the threshold be raised a touch to help shore up the SS fund. However, I'd like to suggest for the long term that our government visit a financial planner to formulate a realistic budget - we are expected to be able to handle our individual financials in a realistic manner - we should expect, rather, DEMAND, our behemoth of a government do the same. Really???? Yes, really.
Government should be downsized - government should govern - a democracy is not designed to grow to such a size that it becomes designed to care and provide for all. The more it provides the more it takes - moving evermore away from the definition and purpose of a democracy.
Foreign aid should be downsized - where in society do you see an individual borrow funds to be able to give to charitable organizations?
Someone has got to look into the health plans enjoyed by our elected - the elected ought to be subjected to the insane system the private sector is subjected to.
We need to stop functioning as the world's police department. Help, yes, shoulder the majority by far, no.
...and on and on
Looking at a few of these expenses and lowering them (similar to an individual reviewing their budget but on a much larger scale) might serve to protect our seniors from being raped and our youth from being robbed blind.
Lastly - vote. Vote enough reasonable and practical individuals in (party aside) good change can happen. Chip away, little by little.
Now I want to retire.
Give me back my money that I paid into for all those years.
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
RECENT ARTICLES ON RETIREMENT
Hurricane season is coming. But storms can happen at any time. Here are six smart things to do to get your home ready before the storm hits.