Why does FICA increase all the time even if your gross pay is the same?

Question

What will happen when all the Baby Boomers retire in a few years? Will we give most of our paycheck to the government to support their Social Security and Medicare checks? What are the proposed alternatives?

http://en.wikipedia.org/wiki/Federal_Insurance_Contributions_Act_tax#Self-employed_people

Answer 1

The rate is not changing, just the wage base.  Not too many people top out.

Answer 2

FICA hasn't increased in like 30 years, it continues to be 7.65% for employees, 7.65% for employers, and 15.3% total.  The ceiling changes every year due to inflation, but the relative average maximum has actually decreased slightly over the life of the system.

The problem with social security arose when they system granted a lifetime of benefits with cost of living increases to all participants.  It was behind the eight ball from the start.  It should have been funded properly in the beginning and tax increases should have transpired as it became necessary.  The government should never have been able to borrow from them and the payout should have been based on what was paid in.

Answer 3

the rate hasn't increased in a long time. the taxable wage limit goes up every year and I think there should be no limit to it so highly paid people pay their fair share - and I'm one of them near the wage limit - they've been talking about the ss system going broke in X yrs, but they still don;t do anything about it - Congress is a bunch of idiots

Answer 4

The FICA rate has not changed in YEARS.

FICA withholding is a flat rate: 6.2% social security, 1.45% medicare.

The maximum amount of social security that can be paid is adjusted annually, sort of in line with inflation.  So the only people who see an increase in FICA taxes without an increase in pay are those who currently make about a six figure income (or more).  And don't those folks normally get raises?  :)

There is no limit on the medicare that can be paid.  So that portion will stay the same for someone whose pay stays the same.

<added the word "withholding" to my answer because you think my rates were wrong>

Also, now it appears the question you put in the subject line is not really your question.

Answer 5

The cap has gone up every year, but the % has stayed the same for the last 20 years.

Yes, this is a serious shell game.  And the baby boomers are ALREADY retiring.  

a.  The benefits are too generous.  For ten years of covered work, someone who worked for $30K year (in current dollars since they system adjusts for inflation) could qualify for a monthly benefit of about $500.  Even old fashioned pension systems woud stop at $250--and these put the companies out of business.

And thanks to COLAs, the benefits keep rising.

(Stop COLAS, increase the number of required quarters, increase the amount earnings equal to a quarter.)

b.  The system was originally designed to help people cope with retirement for a FEWER years.  The life expectancy at age 60 in the 1930s was around15 years.  Now it's at lest 20.  The retirment age of 65 did not bump to 70.  And the system still lets people drop out 3 years early.

c.  No do overs.  It's one thing to recalculate the benefits if someone continues working, it's another to let rich, healthy people have a do over.  (Retire at 62.  At 70 look at your health and if you expect to live another 15 years, "withdraw" from SSA, repay all of your benefits (without penalties or interest), REAPPLY and get a payout that's 50-60% higher per month.  From an actuarial point of view, it's theft.  No insurance company would offer an annuity with that kind of return.

d.  Add a means test.  The current means test is the 85% added to income for middle class tax returns.  (100% kicking in sooner would be more logical.)

e. We let people collect who didn't work.  

While the numbers of wives collecting on their husband's earning history has dropped, the system should never have given them a separate check.  Just the survivor's benefit was plenty.  Giving them 2/3rds more was break the bank.

Or how about this version.  Husband dies of cancer.  Wife misses him and uses stored sperm to get pregnant.  The baby can collect survivor benefits of $750 a month for 18 years.  The husband NEVER supported that baby during his lifetime, yet the taxpayers get to foot $150K of benefits because of his widow's CHOICE.

f.  Get serious about payroll audits.  Not until last year did I really become aware of payroll audits for S corporations.  For years, sole proprietors would become an S corp solely to claim that their reasonable salary was $10,000 (and pay the fica/mc on $10,000) and that their company's distributions of $50,000 was really just profit so they shouldn't have to pay fica/me on it.  Oh right, all consulting work....