While raising the retirement age disproportionately affects lower earners, who have lower life expectancies, lifting the FICA cap combined with making benefits contingent on need would mean truly socking it to the wealthy and affluent. Proponents -- including, oddly, traditionally zealous enemies of "confiscatory" taxes on wealth -- seem to suggest that high earners are getting some kind of free ride from social security. Here's John Boehner, for example, in favor of means-testing:
If you have substantial non-Social Security income while you're retired, why are we paying you at a time when we're broke?What seems lost in this conversation is the fact that at present social security benefits are allocated disproportionately to low earners. It's true that the tax is not progressive -- those earning $100k pay the same percentage as those earning $20k, while and those earning, say, $213,600 (twice the cap) pay half the rate on their total income. But the benefits reaped constitute strongly diminishing returns as one's income increases. Benefits are based on a taxpayer's average indexed monthly earnings (AIME) up to the taxable cap. Of those earnings, averaged over 35 years, those who retire at age 66 currently get the following in SS benefits:
- 90% of the first $761 of AIME
- 32% of the AIME between $761 and $4,586
- 15% for the AIME above $4,586 (up to $8900, beyond which there's no tax or benefits).
