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Scrap the Cap, Strengthen Social Security (Sen. Harkin, April 4) [View All]

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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Apr-19-11 06:23 PM
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Scrap the Cap, Strengthen Social Security (Sen. Harkin, April 4)
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Scrap the Cap, Strengthen Social Security

By Daniel Marans

When Sen. Tom Harkin (D-IA) called for "raising the cap" on Social Security's taxable wage base at a "Back Off Social Security" rally and press conference a week ago, he elicited roars of approval and chants of "raise the cap" from the hundreds-strong crowd. But if, as Sen. Harkin noted, the cap is fundamentally unfair, then why was it even created? And would raising the cap alone solve Social Security's projected long-term shortfall? What about scrapping the cap altogether?

Sen. Tom Harkin (D-IA) speaking about the cap on Social Security's taxable wage base at the "Back Off Social Security"
event on the Hill on March 28th. "Why is it that a factory worker making $50,000 pays the payroll tax on 100 percent
of her income, while a banker making $500,000 pays the tax on only the first $106,800, just 21 percent of his income?
Let's raise the cap!" Harkin proclaimed.


The cap increases annually with the Average Wage Index (AWI), which reflects the average growth in the country's wages. Legislation passed in 1977 instituted periodic increases in the cap that were meant to insure it would cover 90% of the country's earnings. By 1983, the last time Social Security was reformed to account for financial and demographic realities, the cap covered 90% of earnings.


But even as it has served its purpose, the cap has created a situation that many Americans would consider unfair (if they even knew it were the case). Today the cap is at $106,800. That means that no matter how rich you get, you only have to contribute FICA taxes on the first $106,800 of your earnings. Middle class people pay 6.2% of their income to the program, and the rich pay a fraction of that amount on theirs.

In addition to its unequal nature, in recent years, the cap has covered a diminishing portion of country's earnings, putting it under sharper scrutiny from the same crowd that once tacitly accepted it. Since 1983, average wage growth has been skewed by disproportionate increases in the wealthiest Americans. Growth in the AWI has not reflected widespread wage increases. As a result, the cap now only covers 85% of earnings and is projected to cover 83% in the coming years.


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