MURRAY: Is it true that people making under $184k pay a 12.4% Social Security tax rate?

[LiberalArkie]

DAHL: Yes.
MURRAY: And the rate for someone making $1 million?
DAHL: 2.2%.
MURRAY: So, a 12.4% tax for people making less than $184k, but 2.2% for a millionaire or .0002% for billionaires.

Post by @senatebudget

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[Henry203]

1. this is correct

there is a cap where you no longer pay SS.

[Ms. Toad]

4. It is correct that there is a cap.

But the arithmetic and tax attribution are off. The employee rate is 6.2%, and there is an additional arithmetic error in calculation for someone making a billion dollars (not someone who is a billionaire).

[3Hotdogs]

28. Yeah, but the billionaire creates jobs, don't he?

[Ilikepurple]

29. There was a arithmetic error in calculating the "billionaire" percentage

But I disagree that taking both employer and employee contribution percentages is fundamentally wrong when making a policy point. Furthermore, the point isn’t lost if you cut all the percentages in half. 12.4, 2.2, .0022 vs 6.2, 1.1, .0011? Even though I encourage corrections, because accuracy is often beneficial, I don’t think the point is lost by moving the decimal point over one space for those with a billion dollar income. Although I agree that Senator Murray’s use of the terms “millionaire” and “billionaire” was unfortunate, I am guessing that most understood the meaning. To my knowledge we do not have widely used terms for people passing those income thresholds, so unfortunately this usage has gained traction.
I think what is interesting is the impact of these taxes on the various levels of wage earners. I also am encouraged by the discussion FICA and Medicare contributions in relation to unearned income, not that I want our tax code to get any more Byzantine.

[Ms. Toad]

30. It is fundamentally wrong to describe the relative burden on the taxpayer as 12.4%, when it isn't.

The taxpayer does not pay 12.4% of their income. They pay 6.2% of their income. The employer pays half of that. So the burden on the taxpayer is only 6.2% (unless they are self-employed).

I agree the impact of the taxes relative to income is unfair, even though for several years I benefitted from it. But the point can be made just as effectively using accurate accounting.

[ProfessorGAC]

2. Slightly Misleading

To the wage earner, it's 6.2%. The employer pays the other half.
So the direct impact to the worker is the same ratio, but it means the $1 million dollar employee is paying slightly over 1%, not 6.2%

[LiberalArkie]

7. I believe they are referring to a self employed worker, much like the billionaires are.

[ProfessorGAC]

9. That May Be

This is the reason I not only support moving the cap (at 6.2%) up five fold, but three percent on everything above that applied to TOTAL compensation, not just direct wages.
If the money is coming from an implied contract for pay vs services rendered, it should be taxed. Stock options? Tax rhem! Dividend payments from treasury stock applied as compensation? Tax those dollars too.
Then, self-employed or an employee, the tax rate is closer to parity.

[Ms. Toad]

32. Nope. The percentage for a self-employed worker is 11.45.

The self-employed worker is only taxed on 92.35% of their income for SS purposes. 12.5% x .9235% = 11.4514%

[haele]

12. It's the assumption in the wording.

A self employed contract worker making up to $184k pays up to 12.4% Social Security plus the Medicare tax over his or her annual tax schedule.
Yes, they're "employed", either as their own business or part of a business broker, but they're responsible for paying their own Social Security.

Had to explain that last week to my stepdaughter's boyfriend who works for his family business as a contractor and was filing his taxes because that was a requirement for him to apply for a College based Certification program this summer.
He made under the limit to actually pay State or Federal Taxes last year, so he "got money back" but his money back ended up pay SS and Medicare, plus he owed around $100 - and he couldn't understand why.

His 1099 from his mom was pitifully scant. And nothing other than Fed and State taxes had been taken out.

[erronis]

13. And the employer may reduce the wages in order to cover his/her half of the FICA.

Just like employers will cut wages to pay their part of healthcare benefits.

It's naive to think that the employers don't adjust their employee expenditures based on other mandated expenses.

In almost all cases, corporate employers will try to maximize profits. In this current world, with these current employment statistics, the employee is hard-pressed to fight back.

[Ilikepurple]

23. Yes. Employers' share of FICA is just another component of labor cost.

The corporation’s portion of FICA, Medicare, unemployment taxes, and L&I are all part of labor cost. They are all taken into consideration when trying to hit labor cost targets. In some sense, although paid by the employer, it is part of the employees wage. Thinking that corporations absorb the cost is like thinking they’ll absorb tariff costs. Maybe a bit but only to the extent the markets force their hands.

[ProfessorGAC]

24. Certainly Possible

After my 2nd year working, I never had a reason to complain about how much I made, but it wouldn't surprise me that employers do as you suggest.

[progressoid]

20. 15.3% for most of my adult life as a self employed person.

[Ms. Toad]

3. Not accurate in the details (albeit generally accurate in broad strokes).

The Social Security tax paid by those making under $184,000 is 6.2% (not 12.4% - employees only pay 6.2% - the remainder is paid by the employer, unless the taxpayer is self-employed).

For those making $1 million, the tax rate paid by the employee is 1.1% (.062 x 184,500/1,000,000).

Billionaires is a term that relates to wealth, not income. But for someone earning a wage of 1,000,000,000, the tax rate would be .0011% (both arithmetic and tax attribution errors)

[LiberalArkie]

8. What is a self-employed person pay? 12.4%

[state of stupid]

17. If I am not mistaken a self-employed person pays 12.4% payroll tax;

then gets to deduct 6.2% from their personal income tax.

[LiberalArkie]

26. Maybe so, I had to always pay the full amount. But that is what Murray was referring to when they said 12.4%

[progressoid]

21. 15.3% - 12.4% for Social Security and 2.9% for Medicare

[Ms. Toad]

33. Nope. 11.4514%.

Only 92.35% of their income is taxed for SS purposes.

[erronis]

14. I agree with your distinction of a "billionnaire" (wealth) vs. income (wages, taxable gains, etc.)

And that's why the filthy rich usually pay a pittance in income taxes.

They can hide it in capital gains, inheritance, cascading never-ending loans, retirement fund manipulations, real estate, depreciation, etc., etc., etc. ---- All financial instruments that are hugely beneficial to the filthy rich and almost useless to the lower, and disappearing middle class.

[Torchlight]

5. We do our best to fluff the rich and trivialize financial disparity

as 'politically unrealistic', thus illustrating the depth to which we allowed Reagan's vision to permeate our culture.

We once declared war on poverty... but we've since moved the goalposts and have now declared war on the poor.

[Dave says]

6. Benefits are also capped

I think the current highest monthly social security check, at full retirement age (not delayed into one’s 70s), is around $4200 a month. So the “low” tax paid by high income earners corresponds to the “low” benefit they’ll receive. Having said that, I am 100% for removal of the tax cap. It would add to the (unfortunately low) progressivity of our tax structure.

I am also 110% behind treating unearned income the same as earned income for taxing purposes. $100k in capital gains should be taxed at the same rate as a $100k salary.

[ProfessorGAC]

10. Same Page, Except...

...I'd make the dividend tax rate the sanecascearned income a much higher number than $100,000. Unless we consider true retirement income (up to a certain amount) to be different than high dividend yields for much younger people. At some point, one is only "retired" in name only. That they separated from daily work isn't really retirement. It just being wealthy.
But, I also support raising the dividend tax rate in three more tiers at 25%, 28% & 30%.
More progressivity in dividend tax rates seems appropriate.

[Dave says]

18. I'd treat dividends the same as earned income

I used the $100k of capital gains as an example. It wasn’t meant to exclude higher values or dividends.

I think I’d be comfortable with capital gains being indexed for inflation. A $10k house purchased in, say, 1949 and sold today for $400k should not expose one to taxation on the $390k “gain”, only on the amount in excess of the inflation adjusted base. (Without going to the BLS CPI calculator, let’s say it’s $250k in today’s dollars, meaning taxation should only apply to $400k minus $250k, or $150k. Admittedly, once opening this can of worms, other exceptions may be warranted — details, details…!!)

I also think there’s value in reducing the tax burden on the young, gradually rising with age. Especially as youth buy-in is critical.

[ProfessorGAC]

25. I Buy That To A Degree

I would add a sliding scale based upon how long the investment was held.
If you hold an asset for under a year, the gains are taxed at the earned income rate.
But, anything over a year changes the whole tax structure from earned, to gain income.
A year seems too short to me. If I was proposing changes, I think I'd float 5 years.
I'd also be good with a more progressive schedule for gains, just lije dividends.

[Captain Zero]

11. They could uncap the tax until the funds had a 75 year balance.

probably would only take a few years to reload the trust fund.

[Dave says]

19. That's a thought.

The changes made in 1983 were meant to fund social security for 75 years. We’re falling short of that original goal. I think, though, if you remove the cap, benefits are funded up to 125% for the foreseeable future.

(Now, as AI takes away large numbers of jobs, we’ll have to rethink these things wholly anew. UBI anyone? Wealth taxes?)

[MichMan]

37. If the cap is raised, then the benefits should also be increased

Otherwise, the amount paid in is decoupled from the benefits.

[Dave says]

39. I already pointed that out

We don’t want to pay social security benefits out of general funds as that would give politicians too much sway over it. However we kinda gave away too much in 1983. So tacking on the tax to FICA may be the road back to fairness.

Back in 1983, FICA taxes were raised in order to fund a trust fund that was promised to keep social security whole for 75 years. (Additionally, Reagan started taxing benefits.)

However, things happen. Looks like the trust fund will be exhausted in, say, another 5 or 6 years, so we only got about 50 years out of it. Then it can only payout around 75% of existing benefits. Ok, you may say. Others might disagree.

The $2-3T added to the fund was bound by law to invest only in Special Treasury Bonds paying a paltry 2% (it may have changed in recent years). They weren’t allowed to be traded, so we were stuck. We were losing money, as the CPI over most of this period was over 3%.

The debt, further, was “off the books”, it wasn’t included in yearly deficit figures. This allowed more borrowing than the public may have otherwise tolerated. Of course, various R administrations blew the top off of borrowing, leaving anyone who looks at it in shell shock.

Meanwhile there have been 3 tax cuts primarily for the wealthy totaling around $6 trillion. The rich, rather than paying taxes — like we of the rascal multitudes — would loan the government money, get a decent return, and then get their principal back. Good deal! Problem is 99% of us are not in that rarified club.

Back in the day when the top FIT rate was 50%, taxes were pretty equal (at about 30%) all across the income spectrum except for the very top and bottom (this includes sales taxes, state taxes, FIT, etc.). With all the generous tax cuts for the wealthy over the years, I doubt it’s as fair as back then. It never was very progressive. Asking the well off to chip in another 6.2% is not asking too much. It is fair. Equitable. And long past due.

[multigraincracker]

15. Double it for those making over $180,000.00

Just to be clear. You may call it the Multigrain Tax.

[aggiesal]

16. For 2026 Social Security wages are capped at $184,500 and it rises just about every year ...

Everyone will pay 12.4% of their wages (doesn't include investments or bonuses), up to the Capped number.
The more wages you make above that Capped Number, your percentage will keep dropping.

In the late 90's early 2000's there was a discussion that would create a donut hole on these SS wages.
The idea was to raise the cap somewhere between $250K - $400K then any wages between (let's say the cap was chosen at $300K) $300K to $1M, no Social Security was deducted from your wages. But once you reach $1,000,001 in wages, you would have to start paying Social Security again. That amount would be 6.2% from your paycheck and your company would pay the other 6.2%, into your account.

[MichMan]

38. I don't understand the reasoning behind creating a donut hole

If the cap is raised then the cap is raised

[hibbing]

22. I was slow to realize tax code favors wealth

Just from my little investment accounts I can't believe the breaks I get. Pretty much took my whole adult life to realize this.

[SheltieLover]

27. And if you have your own business or are a 1099 contractor, double that rate!

[Ms. Toad]

35. No. The rate cited IS the rate for self-employed individuals (after reducing their income to 92.35%)

So actually 11.4514%.

[dlilafae]

31. Yes, 12 percent taken out

all the way back to the eighties (at least). On that train of thought, how is someone supposed to live on a minimum wage of $7.25 an hour? Work on making 2.2 for the regular people. Broken down simply, how is someone who works 40 hours a week supposed to survive on 1,020 per month? ~ Not possible/allowable wage crimes.

[Ms. Toad]

34. No. 6.2% is taken out for social security. n/t

[Historic NY]

36. WTF it is going broke time to tax the rich accordingly.....