Many Americans looking forward to
Trump's promise of tax cuts from his administration are going to get a rude
awakening when they get their first paychecks of 2017. While Trump has vowed to cut
marginal income tax rates for individuals and corporations, the social security
tax levied on the nation's top earners is set to soar in 2017 for top earners.
For the 2015 and 2016 tax years,
only the first $118,500 of earnings was subject to the 6.2% social security
payroll tax. That said, that "taxable minimum" is set to soar
to $127,200 for the 2017 tax year, a
7.3% increase that will cost America's top earners an additional $539 this
year.
As Bloomberg points out, the steep increase in 2017 is the result
of the federal government making up for lost time as the "taxable
minimum" is not allowed to increase in tax years during which benefit
recipients don't get a cost-of-living increase.
A 7.3 percent hike is way above
inflation: The main U.S. consumer price index was up 1.7 percent in the 12
months ended in November (the latest data available), and it rose just 0.7
percent in all of 2015. So what’s going on here? Well, the Social Security taxable minimum is
adjusted annually based on an index of U.S. wages, not consumer prices. The
National Average Wage Index was up 3.5 percent in 2015, five times faster than
inflation.
But the real reason for this sudden,
steep hike is simply that the government is making up for lost time. The 2017
hike is essentially two years of wage gains packed into one. The wage index
also rose 3.6 percent in 2014, but the Social
Security Administration couldn’t raise the taxable minimum last year because
rules prevent an increase from happening in a year when Social Security
recipients don’t get a cost-of-living increase.
Overall, the tax hike is expected
to take an incremental $11.6 billion out of
American pockets in 2017 according to the Social Security
Administration. The 7.3% increase in the "taxable minimum" is
the largest to hit taxpayers since 1983 when the maximum was still under $40k.
That said, despite the substantial
2017 increase in the taxable minimum, the overall percentage of taxable
earnings subject to FICA tax has been on a steady decline since the early 80s
as growing income disparity in the country has consolidated an increasing share
of income in top earning households.
But, for those Millennials who
suddenly feel some hope that they may actually be able to afford retirement
now, please remember that, like many of America's public pensions,
Social
Security is still just another ponzi scheme that,
even by their own numbers, will run out of money by 2034. Nothing like "throwing good
money after bad" as they say.
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