As the fiscal cliff looms, talk has once again resumed about reforming Social Security. As always, at the top of the list is raising the minimum retirement age. However, did you know that there is a limit on how much Social Security tax a person pays?
Currently the Social Security wage cap is $110,100 (up from $106,800 in 2010) at a tax rate of 4.2 percent (down from 6.2 percent through the end of the 2012 unless extended) paid by the employee and 6.2 percent paid by the employer.
So let’s break this down. At today’s rate, a person with $10,000 gross income will have $420 withheld from her check and the employer will pay an additional $620. A person with $100,000 gross income will have $4,200 withheld with $6,200 being paid by the employer. A person who earned a $1 million in gross wages will pay $4,624.20 in Social Security tax with the employer paying the same $6,200. This is equal to an approximate 0.46 percent effective tax rate!
There is no doubt that the Social Security system needs to be overhauled, but how about starting with raising, or better yet, eliminating the wage cap to increase revenue rather than once again asking us, the middle and lower working classes, to continue to sacrifice while those at the top continue to prosper at our expense?