Take a look at the following graph which shows the maximum dollar amount subject to social security taxes each year:
Using the base amount of $3,000 in 1937 and $106,800 in 2009, I calculated that the amount subject to social security taxes has increased 7.67% per year (the CPI has increased an average of 3.88% over the same time period). Yes, these are the MAXIMUM amounts subject to social security tax. So, I decided to run the numbers again using average wages. I found the data for average wages on the social security website (here). Notice that it runs from 1951 – 2007, so it’s not an exact comparison with the other numbers. Here’s what I found:
Expressed as a graph it looks like this:
NOTE: None of these figures include the employer’s portion of the taxes.
What’s sad is that even with all these increases over the years, the program is still destined to go broke unless they…
1. raise taxes (either by raising the tax rate or by increasing the maximum amount subject to taxes).
2. reduce benefits (somehow I don’t see this happening with the one of the biggest blocks of voters retiring at this very moment).
3. a combination of the two
I’m against raising taxes. We pay in enough as it is and I’m certain that my wife and I will NEVER receive back the amount we paid in.
My solution: Make social security like a “medicaid for retirement,” essentially taking it back to what it was meant to be when it was created: a safety net. We could reduce the amount taken in taxes or even create individual accounts. Those who needed assistance in retirement would have to qualify for it.
I think what has happened over the years is that the program has morphed (with the help of our politicians) into a program promising bigger and better benefits (entitlements) on the backs of the Baby Boomer Generation due to their large numbers. Now that they are beginning to retire, we are figuring out the flaws of the pay-as-you-go system. It’s too late now…those politicians already got those votes.