November 9, 2013

Fact of the Day: The Social Security Wage Cap For 2014 Is $117,000

In a “Fact of the Day” article last November, I wrote that, “eliminating the [Social Security] wage cap while keeping the benefits cap produces a Social Security surplus.” But you don’t have to take my word for it as this is a fact backed up by the Congressional Research Service. But it’s also just common sense. If you lift the revenue limiter (the wage cap) but you pay out the same benefits, obviously Social Security will be solvent for some time to come.

So what is the wage cap again?

Contribution and Benefit Base — Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) program limits the amount of earnings subject to taxation for a given year. The same annual limit also applies when those earnings are used in a benefit computation. This limit changes each year with changes in the national average wage index. We call this annual limit the contribution and benefit base.

The contribution base (wage cap) is $117,000 for next year (2014). That means all income up to $117,000 is subject to the 6.2% payroll tax rate. Or in other words, all income above $117,000 is except from Social Security contributions. This is kind of a built-in means testing in the Social Security program. As Social Security is designed to be a safety-net, a way to stop seniors from falling into poverty, if you make a higher salary during your working years, there’s no need to contribute to Social Security above and beyond the ability of Social Security to act as a safety net in your retirement years. That is why there is a wage cap.

But an alternative viewpoint is to treat Social Security like any other safety net program, and that means those with the means pay more into the system then they get out. If we were to do that by lifting the wage cap, we could keep Social Security solvent indefinitely. But don’t let that statement fool you into thinking Social Security is on the brink of insolvency now, because it is not. If you believe Social Security and Medicare are Ponzi schemes or they are bankrupt (or heading for bankruptcy) I’m afraid the Republican Party has you hook, line and sinker. Social Security has been around longer than most Americans have been alive. It’s not a Ponzi scheme, it’s not going broke. The only way Social Security or Medicare fail is if people, particularly right-wing partisans, allow these programs to fail. The rest of us will support what is required to keep these programs running and doing what they are designed to do.

In fact, there are some on the liberal and progressive side of the aisle who would like to see Social Security expanded. Republicans play offense on politics 24/7, I say it’s about time liberals and Democrats go on the offense too. Maybe we can shift the political center of this country a hair to the left, back where it used to be throughout much of the last century.

Social security

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