I have a few questions about how the Social Security and Medicare programs are paid for, but first, a quick review of how things are done now: For 2013, the upper limit on wages and salaries subject to Social Security tax was $113,700. The 2014 tax year sees this limit increased to $117,000. There has always been an upper limit on wages subject to Social Security tax, for example, in 1996 the limit was $62,700. Medicare tax had it’s upper limit removed in 1994, so all wages and salaries are subject to Medicare tax. Social Security and Medicare taxes are also called ‘payroll taxes’, ‘FICA’ (Federal Insurance Contributions Act), or Federal withholding. Currently, and historically, equal amounts have been paid by employers and employees, with the rates for 2013 and 2014 as follows: 6.2% each for Social Security, 1.45% each for Medicare. This makes a total of 15.3% of all wages and salaries subject to these taxes being paid to the U.S. Treasury. Self employed people and contract employees pay both the employer’s share and the employee’s share of both taxes. A new 0.9% additional Medicare tax was added for 2013 on wage and salary amounts over $200,000 for individuals and over $250,000 for married couples.
- If there is an upper limit on wages and salaries subject to Social Security tax, why is there no lower limit? The amount a person pays in any given year has little or no impact on their lifetime contribution amounts, or the amounts they may ultimately collect from the program. Does it really make sense to have a minimum of 15.3% of someone’s wages go to the Feds if they only have 3 or 7 thousand dollars income in a given year?
- If the upper limit on Medicare taxes was removed 20 years ago, why has the upper limit on Social Security taxes remained in place?
- Why are half of the taxes paid by the employer and half paid by the employee? It all winds up as payroll expense to the employer, so why not have the employer pay it all, or have the employee pay it all, like self employed people and contract employees do already?
- Why tack another small tax (0.9%) on to the whole system rather than increasing the amount of one of the existing taxes? For example, increasing the upper limit on Social Security to $200,000.
- When Federal Unemployment tax is included, there are 6 or more different places these ‘social program’ taxes are figured and collected from. Accounting is debits and credits, income or expenses. Why not just pick a spot and collect one “social program” tax?
It seems to me that people ranting about these programs being terribly underfunded or needing dramatic cuts in benefit amounts should look at some simple improvements before destroying programs which most U.S. citizens seem to appreciate.