In 2034, the Social Security Trust Fund’s surpluses will be exhausted. At that point, they will only be able to pay 76% of planned benefits. As of this writing, that’s 12 years from now. I’m supposed to retire in just over 7 years. If I live to be 72, I’ll be in the generation that sees this promise broken unless we do something. Life expectancy in the US is around 79 years.
So what can we do?
Well, there’s the “FICA cap”. What this means is that Social Security and Medicare taxes are only assessed on the first $147,000 of income (for 2022). After that, you “get a raise” in that FICA taxes are no longer collected. This only applies for ‘normal’ income. Anyone who gets their income from dividends or stock options (like the top 1%) doesn’t pay this tax on those ‘earnings’ at all.
If we removed the FICA cap, we could fund Social Security for another 60 years! That’s a powerful argument. Unfortunately, the latest proposal from Democrats only extends the “depletion date” by a few years. While extending benefits, the proposal only looks at “reapplying” the FICA tax on income over $400,000. In other words, income from $147,001 to $399,999 would still be FICA-tax-free. This is what happens when the President makes a promise not to raise taxes on anyone earning under $400,000. This is in sharp contrast to the cuts that Republicans have wanted to do.
Social Security has been the single-most successful anti-poverty program in the history of the country. It needs to be fixed. Eliminating the FICA cap is a good idea. If a person makes enough to hit the cap, it means they’ve paid their bills all year until that cap gives them a raise. There aren’t many places where making $150,000 has you “on the edge” tightening your belt until December rolls around.
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