Yes it's a very blatant hole that needs to / should be fixed. There's also no reason there should be a cut-off on FICA taxation as you scale up in income. The Democrats should target those easy taxation wins (if they can stop for a moment trying to get tax cut handouts for higher income persons in their coastal cities in the form of SALT deductions; pretty hilarious to watch the Dems argue in favor of raising taxes on nearly everything that moves while simultaneously arguing that people earning six figures desperately need a tax cut - solely because it's overwhelmingly for their voters in affluent blue cities).
There is a real reason FICA has a cap, because it's not an income tax. It's sole purpose is for a retirement & medical benefits program that was sold as fair to all when introduced. Forcing someone to pay 10X or 100X over their lifetime for the same benefits as someone else doesn't strike anyone as fair.
Forcing someone to pay 10X or 100X over their lifetime for the same benefits as someone else doesn't strike anyone as fair.
Respectfully, I disagree, that's just progressive taxation and it's true of every other aspect of our tax system. Someone who pays 10X or 100X more taxes than me isn't getting 100X the value out of our roads, bridges, or the army.
It's fair IMO because of the marginal utility of money. If you make $50,000 per year, $10,000 means a lot. If you make $10M, $10K is a rounding error or a fun weekend in Vegas. A progressive tax system is IMO flat when plotted against the marginal utility of the value accrued. Think of it in terms of burgers. I require 3 burgers a day to live. I get paid 3. If you try and take 1, I go hungry. That burger is worth a lot to me. On the other hand if I get paid 10 burgers, and you try and take 1, it means nothing to me. That burger is worth a lot less because I'm already so full. Same is true in the abstract in terms of dollars.
Again, SS was designed to be a fairly funded retirement plan, where your contributions determined most of your payout. The amount of the contributions were designed to fund those payouts, and nothing more.
Of course we can remove the contribution cap, but now it's not a retirement plan funding mechanism, it's an income tax that has no justification for retirement plan funding.
You can easily reach the hard cap on future SS payments while earning barely more than the median pay in the US during your career. So every dollar you contribute above that earns you nothing. Someone who contributes 100x gets nothing for that.
Comments
Yes it's a very blatant hole that needs to / should be fixed. There's also no reason there should be a cut-off on FICA taxation as you scale up in income. The Democrats should target those easy taxation wins (if they can stop for a moment trying to get tax cut handouts for higher income persons in their coastal cities in the form of SALT deductions; pretty hilarious to watch the Dems argue in favor of raising taxes on nearly everything that moves while simultaneously arguing that people earning six figures desperately need a tax cut - solely because it's overwhelmingly for their voters in affluent blue cities).
There is a real reason FICA has a cap, because it's not an income tax. It's sole purpose is for a retirement & medical benefits program that was sold as fair to all when introduced. Forcing someone to pay 10X or 100X over their lifetime for the same benefits as someone else doesn't strike anyone as fair.
Respectfully, I disagree, that's just progressive taxation and it's true of every other aspect of our tax system. Someone who pays 10X or 100X more taxes than me isn't getting 100X the value out of our roads, bridges, or the army.
It's fair IMO because of the marginal utility of money. If you make $50,000 per year, $10,000 means a lot. If you make $10M, $10K is a rounding error or a fun weekend in Vegas. A progressive tax system is IMO flat when plotted against the marginal utility of the value accrued. Think of it in terms of burgers. I require 3 burgers a day to live. I get paid 3. If you try and take 1, I go hungry. That burger is worth a lot to me. On the other hand if I get paid 10 burgers, and you try and take 1, it means nothing to me. That burger is worth a lot less because I'm already so full. Same is true in the abstract in terms of dollars.
Again, SS was designed to be a fairly funded retirement plan, where your contributions determined most of your payout. The amount of the contributions were designed to fund those payouts, and nothing more.
Of course we can remove the contribution cap, but now it's not a retirement plan funding mechanism, it's an income tax that has no justification for retirement plan funding.
Social Security payments are progressive but have no fixed limit, so those paying 10X or 100X would also receive higher payments.
You can easily reach the hard cap on future SS payments while earning barely more than the median pay in the US during your career. So every dollar you contribute above that earns you nothing. Someone who contributes 100x gets nothing for that.