There are two pieces to Social Security Tax.
There is no wage cap on the Medicare Tax portion.
However, for the Old-age, Survivors and Disability Insurance (OASI) portion of the Social Security Tax, there is a federal payroll
tax for both the employee and the employer, which is 6.2% of the employees
wages, but only up to a maximum wage cap of the first $110,100 of the
employees wages in 2012. And this maximum wage cap increases each year for the cost of living.
So clearly the tax loophole here is that there is a wage cap on the OASI portion of the Social Security tax.
I would eliminate the OASI wage cap, but do it in an economically fair way.
Thus for OASI payroll tax purposes, starting in 2013, I
would keep the Wage Cap like it is presently constituted, but then
remove it for all of those making $1 mil or more. And then I would
fairly scale up the removal of the Wage Cap for those making $250,000 or
more. For example, the additional OASI federal payroll tax could be
designed something like this:
For W-2 Wages of $250,000 to $400,000.....1.0%
For W-2 Wages of $400,000 to $550,000.....2.0%
For W-2 Wages of $550,000 to $700,000.....3.0%
For W-2 Wages of $700,000 to $850,000.....4.0%
For W-2 Wages of $850,000 to $1,000,000..5.0%
For W-2 Wages above $1,000,000.................6.2%
And then the company would have to match this increased OASI federal payroll tax paid by the employee.
This would make the Social Security Trust Fund solvent for decades longer.
And it is a much fairer way to reduce the US Debt than to use a Chained CPI Index for Social Security Benefit annual increases.
Anybody who is elderly knows that the mix of your disposable income that goes to Health Care goes up dramatically as you age. Therefore, using any CPI for Social Security Benefits is flat out crazy, since Health Care costs increase each year dramatically more than all other costs for the elderly.
What is needed here is to devise a fair inflation rate for the elderly, which properly addresses what the elderly spends their meager disposable income on. And this inflation rate should change depending on just how old someone is.
