Social Security Wage Base

[LivingAlmostLarge]

I was just looking at the SS wage base and was surprised at how quickly the wage base has gone up. From 2005 $90k to 2010 $106,800 so about $16,800 in 5 years, then $118,500 in 5 more years in 2015 so another $11,700, then now in 6 years $142,800 so up $24,300 in 6 years. I thought it was tied to wage growth. I didn't think wages were growing that fast. It certainly doesn't feel like that. Also the rapid rise in wage base should be making faster increases in contributions to SS to stabilize it correct? How can we be running out when the wages taxed for it is going up rather quickly?

[Like2Plan]

I was just looking at the SS wage base and was surprised at how quickly the wage base has gone up. From 2005 $90k to 2010 $106,800 so about $16,800 in 5 years, then $118,500 in 5 more years in 2015 so another $11,700, then now in 6 years $142,800 so up $24,300 in 6 years. I thought it was tied to wage growth. I didn't think wages were growing that fast. It certainly doesn't feel like that. Also the rapid rise in wage base should be making faster increases in contributions to SS to stabilize it correct? How can we be running out when the wages taxed for it is going up rather quickly?

I think it is a move to shore up SS. There have been folks suggesting there be no maximum.

[disneysteve]

You're absolutely right. It's a way for them to raise the SS tax without actually raising the tax rate. Every year they raise the income cap so that more and more income is subject to the tax even though the rate of taxation is the same.

[LivingAlmostLarge]

You're absolutely right. It's a way for them to raise the SS tax without actually raising the tax rate. Every year they raise the income cap so that more and more income is subject to the tax even though the rate of taxation is the same.

I thought with it going up so much it would be faster to help shore up SS?

[disneysteve]

I thought with it going up so much it would be faster to help shore up SS?

I'm sure that's the reasoning behind it, and I'm sure they'll keep raising it. There are plenty of people making more than the current cap so it's an easy way to increase funding for the program.

[srblanco7]

Snipped from a report by the Congressional Research Service -

Since 1982, the Social Security taxable earnings base has risen at the same rate as average wages in the economy. Because the cap is indexed to the average growth in wages, the share of the population below the cap has remained relatively stable at roughly 94%. However, due to increasing earnings inequality, the percentage of aggregate covered earnings that is taxable has decreased from 90% in 1982 to 84% in 2017.

Raising or eliminating the cap on wages that are subject to taxes could reduce the long-range deficit in the Social Security trust funds. For example, the Social Security Administration’s Office of the Chief Actuary (OCACT) estimates that phasing in an increase in the taxable maximum (for both contributions and benefits bases) to cover 90% of covered earnings over the next decade would eliminate roughly 20% of the long-range shortfall in Social Security. OCACT’s estimates also show that if all earnings were subject to the payroll tax, but the current-law base was retained for benefit calculations, the Social Security trust funds would remain solvent for over 40 years. However, having different bases for contributions and benefits would weaken the traditional link between the taxes workers pay into the system and the benefits they receive.

Hard for me to fathom how much in wages is represented by the decline from 90% in 1982 to 84% in 2017, but I'm imagining it's a huge number (150M employed x average wage x 6%).

And after thinking about it, I'm guessing that the rapid increase in the SS wage cap is also related to income inequality - lower paid worker wages increasing slowly and higher paid worker wages continuing to increase at a much higher rate. Found a table on the Social Security website that seems to back this, as it shows that average net compensation has increased 66% since 1991 and median net compensation has increased 148% in the same time period - more than 2x.

[disneysteve]

Snipped from a report by the Congressional Research Service -

Since 1982, the Social Security taxable earnings base has risen at the same rate as average wages in the economy. Because the cap is indexed to the average growth in wages, the share of the population below the cap has remained relatively stable at roughly 94%.

That's total BS.

At least it is for me. I've never had the sort of job that gets regular annual pay raises. Right now I'm in a 3-year contract so my pay won't change for those 3 years, but the SS base still goes up every year. At my last job, my pay was flat for about 10 years, but the SS base still went up every year.

Are there really many jobs that get set annual raises tied to whatever measure they use to raise the SS base? Must be nice if there are.

[srblanco7]

That's total BS.

At least it is for me. I've never had the sort of job that gets regular annual pay raises. Right now I'm in a 3-year contract so my pay won't change for those 3 years, but the SS base still goes up every year. At my last job, my pay was flat for about 10 years, but the SS base still went up every year.

Are there really many jobs that get set annual raises tied to whatever measure they use to raise the SS base? Must be nice if there are.

Wow. 10 years seems extreme. IIs that typical in medical field? Were you receiving incentive comp or profit sharing on top of base pay?

What I find online indicates that since 1975, the SS taxable earnings base is based on a calc of average wages. I'm speculating that the numbers continue to skew higher (median vs average) based on increased earnings of high earners.

Historically, I'd received annual raises - but with the new company owners and employment contract, it's now more like 18-24mos. between compensation reviews.

[disneysteve]

Wow. 10 years seems extreme. IIs that typical in medical field? Were you receiving incentive comp or profit sharing on top of base pay?

Nope. I was in family practice, the lowest paid and least respected field of medicine. Reimbursements had been steadily falling while overhead was consistently rising. It didn't leave a bunch of surplus for raises. That's a big part of why I finally decided to get out. What had been a perfectly acceptable income had become barely enough to manage our responsibilities. I switched to urgent care and my income doubled (actually more than doubled when you look at the total compensation package).

[srblanco7]

Nope. I was in family practice, the lowest paid and least respected field of medicine. Reimbursements had been steadily falling while overhead was consistently rising. It didn't leave a bunch of surplus for raises. That's a big part of why I finally decided to get out. What had been a perfectly acceptable income had become barely enough to manage our responsibilities. I switched to urgent care and my income doubled (actually more than doubled when you look at the total compensation package).

While there are other factors in addition to comp that relate to job satisfaction - a more than 2x increase in comp would simplify the decision making .