Okay, time for a quiz. Let’s say you’re employed — what then is the maximum amount you will pay in Social Security taxes (FICA) this year?
The answer is 4.2 percent of the first $110,100 gross pay you earn or a maximum amount of $4,600.
Okay, so what then is the Social Security tax if you make OVER $110,100?
Ready for this? Zero percent. Nada. Zippo.
The fact is, whether you make an annual salary of $110,100 or $500,00 or $5 million, you pay the same Social Security tax — $4,600 and change.
For wealthier Americans, that is like a built-in small bonus in your take-home pay once you pay out $4,600. After that, the FICA man stops coming around. For millionaires like A-Rod or Katie Couric, the FICA man probably stops comin’ round the first week of the year.
I would lay money (maybe even $4,600) that a lot of Americans have no idea that Americans of more means get a free ride on that nasty little FICA line in your paycheck once they hit that cap. Shhh….
But is that fair? Is it a regressive tax? And wouldn’t we be able to solve the entire Social Security “crisis” — the not so far away date when the fund will run out of money — if only we eliminated that cap and kept taxing Americans of greater means?
If we raised or eliminated the cap, it’s possible that the tax overall would even go down, not to mention that we’d no longer have to worry that the fund would run out of money.
If this seems to make a lot of sense (it does to me) why is no one talking about it? Well most likely because it means raising taxes or closing a loophole which, to many politicians, is the same thing.
It’s just another example of why simple solutions seem so exotic in this silly political season. Better to engage in magical thinking, the kind that says you can have all your services and not raise taxes at all. And let’s face it, more than likely, whoever the next president is, will appoint yet another commission to come up with a very complicated solution that will probably go nowhere.