Each month, nearly 61.6 million people receive a Social Security check. For many of these folks, especially the 42.1 million retired workers, it's a critical source of income that they simply couldn't live without. Data from the Social Security Administration (SSA) shows that a third of seniors lean on Social Security for 90% or more of their monthly income, with 62% generating half their income from Social Security.
With this sort of reliance, it should come as no surprise that October is what can often be defined as a make-or-break month for retirees. Each October, the SSA releases its annual updates to the program, which includes cost-of-living adjustments, which are the "raises" beneficiaries receive most years, maximum monthly payout adjustments, and of course, inflationary changes to the maximum taxable earnings cap, which is the dollar amount at which earned income stops being taxed by Social Security.
This latter modification is of particular importance with Social Security's foundation beginning to crumble, and lawmakers looking at ways to generate more revenue. As a reminder, the Social Security Board of Trustees' 2017 report projects that the program will begin paying out more in benefits than it's generating in revenue by 2022, ultimately leading to the complete depletion of its $3 trillion in asset reserves by 2034. The Trustees opine that a 23% benefits cut could be looming for all current and future retirees by 2034 if a fix isn't implemented.
Here's how much extra the wealthy will pay in Social Security tax next year
So, how much extra Social Security tax will the wealthy be on the line for in 2018? Let's take a closer look.
Social Security's payroll tax is a 12.4% tax on earned income between $0.01 and $127,200, as of 2017. It's important to note, though, that most workers aren't paying the full 12.4% Social Security tax. If you're employed by someone else, your employer covers half of your payroll tax responsibility, or 6.2%. This means most working Americans will pay 6.2% of their earned income, up to $127,200 in earnings in 2017, into Social Security. On the other hand, the self-employed owe the full 12.4% tax.
Determining how much extra you'll owe in 2018 really depends on how much you'll earn, as well as whether you're employed by someone else or self-employed. According to the Social Security changes announced earlier this month, the new maximum taxable earnings cap will be $128,700 in 2018, an increase of $1,500. For the wealthy who are employed by someone else, this works out to an additional $93 a year. For the self-employed, this amount doubles to an extra $186 a year.
When looked at as an aggregate, the rich could owe a maximum of $7,979.40 if they're employed by someone else, or $15,958.80 if self-employed, in 2018.
Should the rich be paying more?
The raging debate on Capitol Hill is whether these tax figures are high enough for the wealthy -- and the answer isn't as cut-and-dried as it might seem. On one hand, taxing the rich more would seem to make a lot of sense given that approximately 90% of all working Americans are paying into Social Security with every dollar they earn (i.e., they earn less than $127,200 as of 2017). Raising or removing the maximum taxable earnings cap has overwhelming support among the public for this exact reason -- it would affect just 1 in 10 workers).
There's also that little fact that most well-to-do folks probably aren't going to be reliant on Social Security income when they retire.
But the real allure of raising, or eliminating, the taxable earnings cap is that it would completely, or almost completely, cover the estimated $12.5 trillion budget shortfall in the program between 2034 and 2091. Lawmakers are looking for solutions to fix Social Security, and one simple alteration to the taxable earnings cap could do just that.
However, there's another side to this story. Lifting or eliminating the taxable earnings cap doesn't make much sense when the maximum monthly payout for Social Security at full retirement age is just $2,687 in 2017, or $2,788 in 2018. Essentially, the rich could see their tax liability for Social Security increase substantially, but they wouldn't necessarily see one red cent extra in benefits come retirement because of it. This is exactly why the cap exists in the first place -- to be fair to all working Americans and future retirees.
Thus, while most working Americans would probably like to see the rich pay more, the chances of that happening, beyond standard inflationary increases, doesn't seem too likely.
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