Tag Archives: social security

To make social security fairer, raise the ceiling.

For most working folks, the majority of your taxes are social security, certainly the majority of your federal taxes. The tax structure of SS is strongly weighted to help the rich. This is a fact that politicians have created and typically hide. Both parties proclaim tax help for the middle class, by instituting income tax changes that barely affect anyone, and really sticking it to the low wage-earner and middle class by a highly recessive SS tax that charges 14.2% off the top for a self-employed person, or 7.1% for an employee, but only to a cut-off of $160,000.

Anyone making more than this pays nothing on the overage, with the result that high earners, on a percent basis, pay essentially 0% tax. The rest of the high eaters income is generally protected by deductions. His car is a work expense, rented from the company, his travel is too. The working plumber benefits from these same deductions, but ends up paying 14.2% because of Social Security, while someone earning $1.6 million ends up paying 1.42% effectively.

People earring more than $1.6 million gain credit for other exemptions. Bill Gates has been buying farm land and claims the depreciation of the land value. Land does not actually depreciate, but you can claim it does because people like him get to fix the tax code (Donald Trump gets the same deduction, BTW on his gold courses). Less rich folks can still deduct the high cost of country club membership, of travel, entertainment, and meetings in exotic places (you can claim some of that too). Because so much of what you pay is Social security, it will come out that, while the executive may pay more in absolute tax, he or she will pay far less as a percentage. Many rich folks claim to find this offensive, but neglect to suggest the most obvious correction raise the ceiling on social security and (ideally) lower the the %.

I strongly suspect that we could bill for social security at 5% and 10% if we raised the ceiling to $2,000,000 per year. I suspect that SS would then be more solvent too. The net result would be drastically fairer.

Robert E. Buxbaum, April 23, 2023

Why Warren Buffett pays 0% social security tax

Social Security is billed along with Medicare (health care for the poor) as an anti-flat tax called FICA where middle class workers pay 7.65 -15.3%, and rich people pay essentially 0%. The reason that Warren Buffet and other rich people pay 0%, on a percentage basis, far less than their secretaries, is that there is a FICA cap of $127,200 currently, and he earns far more than $127,200. Buffett’s secretaries pays 7.65%, or which 6% approximately is social-security payment, and the rest Medicare. Buffett’s company then matches the 7.65% — a situation that applies to virtually every employee in the US.

A self employed person though, a gardener say, pays both the employee and employer portion or 15.3%. The same $127,200 cap applies, but since few gardeners make more than this amount, they are likely to pay 15.3% on all earnings, with no deductions. FICA really socks the poor and middle class, and barely touches a rich man like Buffett. This is the tax-inequality that most needs addressing, in my opinion, and one I have not heard discussed.

A short history of FICA

A visual history of FICA rates (right), and of the salary cap (left). Medicare contributions were added in 1966.

As I write this, there is a debate about tax reform that mostly involves income tax, but not at all FICA. Income tax could be improved, in my opinion, and should be. We could remove some exemptions that are being abused, and we should lower the general rates, especially for foreign-earnings, but the current income tax isn’t that bad, in my opinion. Buffett likes to brag about the high rate he pays, but it’s not a bad rate compared to the rest of the world. And Buffett benefits from a lot of things we don’t. His income is taxed at a lower rate than a worker’s would be since most of it is unearned. And, like most rich folks, he has exemptions and deductions that do not apply to most. He can deduct cars, private airplanes, and interest; most folks don’t deduct these things since they don’t spend enough to exceed the “standard deduction”. I’m happy to say these issues are being addressed in the current tax re-write.

The current, House version of the GOP tax proposal includes a raise in the standard deduction and a cap on interest and other deductions. There is a general decrease in the tax rate for earnings, and a decrease for earnings made abroad and repatriated. I’d like to see tariffs, too but they do not appear in the versions I’ve seen. And I’ve very much like to see a decrease in the FICA rate coupled with a removal of the salary cap. Pick a rate, 4% say, where we collect the same amount, but spread the burden uniformly. Why should 7.65%-15.3% or the workmanship wages got to the window, the orphan, and healthcare of the poor, while 0% of Buffett’s go for this?

Some other tax ideas: I’d like to see shorter criminal sentences, especially for drugs, and I’d like to see healthcare addressed to reduce the administrative burden.

Robert E. Buxbaum, November 17, 2017. In the news today, the senate version puts back the tax exemption on private jets. The opposite of progress, they say, is congress.