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Wednesday, November 30, 2005

Why the income cap for Social Security?

I've been bothered by the fact that the government puts a cap on ones income when taking out the Social Security payroll tax. Frankly, the income cap confuses me. I would imagine that if the government has made a promise to take care of retired, disabled, and/or familial survivors, then they would want to tax a person's total income, not just a certain amount up to a point.

Perhaps if a person's total income were taxed, there would be less incentive to work and earn more money. But the payroll tax is a flat tax, one is taxed 6.5% regardless of what one earns, while the employer kicks in the other 6.5%. It seems to me, a working college student earning less than $20,000 a year that those who earn over $90,000 (I think that's the income cap--if not, please correct me) aren't paying their fair share of the payroll tax--only a certain percentage of their salary. And America is a capitalist society, and I think most people try to increase their earning potential, and the lacking incentive to work because one would have to pay more in Social Security just doesn't hold water in my opinion.

Perhaps the government feels that with the income cap, a person with a high income can take care of themselves upon retiring, and will not really need Social Security, and hence the government will only have to pay out the income cap percentage. That might make a little more sense--if one is not going to use Social Security, then the income cap means that one is not completely paying into something that will not be used. After all, I very much doubt someone like multi-billionaire Bill Gates will ever have the need for Social Security, so why should he have to pay his complete income percentage into it? In short: because everyone else who earns below the income cap must pay their complete share.

Many younger people are preparing for a future without Social Security, and are looking into private retirment and savings options. It is doubtful that the same (inflation-adjusted) amounts currently being paid to recipients will be there in the future. And yet, workers and employers must continue to pay for something that may not exist in the future. Certainly, change to the entire Social Security system must be made. Making it into a real insurance program, as opposed to the current pay-as-you-go scheme is a viable solution. Also, getting rid of the income cap would make it a more equitable program. So, to the federal government: stop taking 6.5% of my income and only a tiny percentage of Bill Gates's!

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