
In the US you get a bonus of $500/month when your income reaches $128K - DVassallo
https://twitter.com/dvassallo/status/1101251535965573121
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bdcravens
Are people that unknowledgeable about how social security taxes work?

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DVassallo
Does anyone know why the tax cap exists?

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bdcravens
Presumably what you are paid out in retirement is a product of what you paid
in. Social Security taxes don't go into the general fund. Unless social
security was entirely restructured, removing a cap on paying in would remove a
cap on being paid out, and the US government probably wants a ceiling on that
obligation.

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DVassallo
Is the safety net in the US so strong that it couldn't benefit from more
funding?

Social security is not just for retirement benefits. It's supposed to be a
national insurance.

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wahern
Insurance for what? Social Security is primarily a pension fund for retirees
and survivors, and only incidentally for severely disabled workers (though
what counts as disability has grown somewhat). As suggested, beneficiary
benefits are a function of what was paid in. It's basically structured like a
life insurance annuity--what economists consider the best retirement savings
vehicle from a private market perspective. Even in the 1930s the specter of
socialism made such a compromise necessary. Nobody was supposed to get
unearned benefits except that survivors (widows and children) and the aged
could receive a minimum, starvation benefit that exceeded contributions. The
specter of socialism is still with us so it's not very reasonable to expect
Social Security to become any more progressive. Simply maintaining the status
quo will be difficult.

Federal payroll taxes also include a separate Medicare tax. Medicare benefits
aren't pegged to contributions which is why Medicare is a large and fast
growing burden on the general fund, especially considering the apparent
political infeasibility of raising tax revenue.

Most states also impose separate disability and unemployment insurance payroll
taxes.

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DVassallo
If I die tomorrow at 35, what will happen to the $52K I paid in social
security tax?

It's not a fund; It's an insurance.

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wahern
Insurance describes properties of the system. A fund is simply an account for
settling liabilities. A private insurance company also has a fund for settling
liabilities, regulated by law to ensure there are enough assets to cover
expected liabilities according to very conservative risk formulas.

An entity that assumes liabilities without maintaining such a conservative
fund isn't an insurance company--it's just a business venture (high risk) or a
bank (low to moderate risk).

It's not worth nit-picking because Social Security is a hybrid system. Though
structured much like a private insurer, it has a significant progressive
element (certainly for its time) and is backed by the full faith and credit of
the U.S. in the sense that it only holds U.S. bonds and also in the sense that
the national government is expected to either cover funding gaps or adjust the
benefits formula. And there are other programs, like SSI, created later and
administered by the same departments. It's a complex picture.

But if the question is why isn't Social Security _better_ \--more progressive,
funded differently, etc--you have to look at the history.

