Social Security's Dual-Income Trap
U.S. workers have paid a reduced Social Security tax rate of 4.2 percent for the past year and a half, down from the ordinary rate of 6.2 percent. For most Americans, this has meant some welcome tax relief. But one group is still paying more than its fair share.
Families with two breadwinners can end up paying more than twice as much in Social Security taxes as families with just one income.
At current Social Security tax rates, a married couple in which each partner independently earns $100,000 pays a total of $8,400 in employee Social Security taxes. A single breadwinner earning $200,000 pays just $4,624. A single breadwinner earning $200 million or $200 billion pays the same $4,624.
The reason is that Social Security taxes are paid only on the first $110,100 of each individual's wages.
Because of the complexities of Social Security tax rates and the fact that Social Security taxes are based on individual earnings instead of total family income, dual-income couples pay more in Social Security taxes than anybody else.
As a result, a typical New Jersey married couple in which an actuary (average annual salary $100,050) is married to a database administrator ($82,750) pays 66 percent more in Social Security tax than either New York's bachelor mayor Michael Bloomberg or the unmarried shortstop Derek Jeter.
A married Iowa optometrist ($104,370) and radiation therapist ($82,190) together pay 69 percent more than a single Chicago commodities trader or actor George Clooney, who got divorced in 1993 and says he'll never get married again.
Now, no one is going to starve on combined family incomes like these. But there's a big difference between a family where a single breadwinner makes $200,000 or more a year and a family where two working parents scrape together $200,000 a year on their combined incomes.
Individuals earning more than $110,100 in wage income should pay the same Social Security taxes at the same 4.2-percent rate as everyone else. This isn't just fair. It's also fiscally prudent.
When Congress lowered the individual Social Security tax rate from 6.2 percent to 4.2 percent, it didn't balance this with sufficient taxes or cuts to replace the lost revenue. Applying the reduced 4.2-percent tax rate to all wage income would more than make up for the lost revenue.
To make the Social Security system solvent forever, Congress could simply apply the reduced 4.2-percent individual Social Security tax to all income instead of just wage income. Currently, investment income isn't subject to Social Security tax at all.
We shouldn't penalize dual-income families to subsidize highly compensated individuals. Washington should close the dual-income trap by levying Social Security taxes on all wage income.
Better yet, apply the 4.2-percent Social Security flat tax to all income.
With everyone paying their fair share, we can afford to make the reduced 4.2-percent Social Security tax rate permanent — and at the same time ensure that Social Security will be there for our children and grandchildren as well.
Salvatore Babones is an American sociologist at the University of Sydney and an Institute for Policy Studies associate fellow. His book on the American economy, Benchmarking America, is due out in 2013.
Read the latest political news.
- Of Bedrooms and Boardrooms
- Budget Cut Blues: America Needs More Informed Citizenry
- Pentagon Spending Spree
- Why the 'Pro-Growth Centrists' are Wrong
- Social Security's Dual-Income Trap
- Mitt Romney Must Find Tactical Advantage
- New Marco Rubio Faces Key Test
- Mitt Romney's Pitch to Hispanics Won't Work
- Turning the Other Cheek to Donald Trump
- Trampling the Right to Vote
- Ham-Handed Solution to a Problem That Doesn't Exist
- New Florida Voter Purge Should Come As No Surprise
- Romney and Bain: Actual 'Entitlement Society' in Action
- An 'Independent' Super PAC Demonstrates Supreme Court's Folly
- On Picking an Unprepared Vice-President
- Fat Cat Urged to Bankroll Anti-Obama Hatefest
- The Massachusetts Indian War of 2012
- Chameleon Nation
- Cabinets Gone Wild
- Which Kind of Capitalism? A Debate for Obama and Romney
- More Campaign Surrogate Blunders
- Are We Better Off Than in 2008?
- The Defeat of a Man of Reason
- Our Politics is a Mess, But Only One Party is The Cause
- Right-Wing Rage Trips Itself
- 'Money Primary' Pushes Obama to the Left
- Mitt Romney's Stellar Performance
- A Campaign Treading Water
- Mitt Romney Feeds the Crocs
- The Power of the Incumbency
- Demise of a Centrist Nominee Dream
- The Media's Religion Deficit
- Crushing College Dreams
- We Can't Afford Energy Subsidies and Tax Breaks
- The Truth's Liberal Tilt
- Mitt Romney's Media Handicap
- George Bush's Pithy Endorsement
- Spending Debate Creates an Opportunity for Mitt Romney
- The State of the Military-Industrial Complex Is Strong
- Republicans Have Bad Brains?
- The Citizen and the Government
- The President's 'Other Gospel'
- Voter IQs Need Refresher Course
- Cliches Conservatives Say
- Generation Pap
- Are Government's 'Strategic Communications' Coming to American Airwaves?
- The Job Stall
- Who Lost Latin America?
- United States Unlikely To Condemn Argentina's 'Outlaw Behavior' -- Yet
- French Elections Lesson
- Companies Save Big On Corporate Taxes With the Help of Lobbyists
- Happy Anniversary, or Partisan Boasting?
- On Losing Control of the Message
- My Papers? No Thank You
- Pothole Nation
- Why Being 'On The Right Track' Isn't Enough
- The Poor as Collateral Damage
- The Real Deal About College Costs
Social Security's Dual-Income Trap | Politics
Distributed via OtherWords (OtherWords.org)