General Discussion
In reply to the discussion: Easy cure for the Social Security issue..This is a no brainer. [View all]Remember that as you go up the income scale and pay into social security, the amount of every dollar you earn above certain thresholds that your social security benefit is meant to replace goes down. I worded that a little weird, but here is an example..
When you decide to collect your Social Security benefits, the social security administration calculates your average monthly income (indexed for inflation) to come up with your primary insurance amount (PIA). To get the PIA they take your average indexed monthly income and replace 90% of the first $926, average monthly income above $926 but below $5,583 is replaced at 32% and monthly income above $5,583 is replaced at 15%. If your average monthly income equals out to less then $926, then social security will pay out 90% of your average monthly income. The more money you make however, the less and less of your income social security will replace as more of your average monthly income is subject to the lower "bend point" percentages..
Meaning if you raise the cap, even if you maintain the current system of paying out a higher monthly benefit as people make more, there still is a benefit to the overall program as social security is paying out to you just 15% of every additional dollar you put into the system. And various proposals to make social security solvent have proposed changes like lowering the 15% bend point to 5% or lifting or eliminating the cap and creating a whole new bend point at 5% for every dollar that would come in above today's current cap. If caps were eliminated and a wealthy person saw their indexed average monthly income go up by $20,000 and all of that newly counted income was subject to a new bend point of 5%, than they'd see $1,000 (5% of 20,000) added to their monthly primary insurance amount. Meanwhile when that person was working and paying taxes that additional $20,000 was taxed at the standard 12.4% (the 6.2% social security FICA payroll tax, which is matched by the employer, making it 12.4%) so was bringing in $2,480 in monthly revenue for the program. In other words lifting the cap can still benefit the solvency of the overall program while also maintaining the historical practice of having an individuals primary monthly benefit increase with the more they pay into the system, its just as your income goes up, the corresponding increase to your monthly primary insurance amount is smaller than it is lower down in the the income scale.