Payroll Tax is not the correct word to be using when it comes to SS contributions...

[WCGreen]

If you call it a tax, then you are mudding up the true nature of the payroll deduction to fund Social Security.

Even though the IRS calls it a tax, it is really a contribution because it goes into your FICA account to determine how much you will receive when you retire...

I know it sounds nit picking, but there it is.

[CaliforniaPeggy]

1. It's an important detail that folks need to understand...

Since it describes something we'll receive at retirement...

Thanks for clarifying!

[dkf]

2. The problem is the payroll tax is used to make the assertion that people who don't pay income taxes

Still pay federal taxes.

This is the reason people do stress that it is a tax.

[WCGreen]

3. I know that but it is a terminology trap...

The federal tax on gasoline is enough to say that those work and don't make enough money to pay tax still pay taxes on gasoline...

But here is a link that spells out import taxes and other hidden taxes we pay every day....

http://articles.moneycentral.msn.com/Taxes/CutYourTaxes/HiddenTaxesYouPayEveryDay.aspx?vv=1100

[dkf]

4. The federal tax on gas goes to pay for roads. It's a users tax.

[Major Nikon]

5. FICA is a tax

There is no such thing as a "FICA account". FICA taxes go right into the general fund.

I think it's much more misleading when the Limpballs of the world say the poor don't pay "taxes".

[Sirveri]

6. Close, but FICA does not go direct to the gen fund, it first is disbursed to OASDI and others.

2/3 of it goes into Social Security, the rest goes into medicare and unemployment insurance. The excess money for those programs is then used to purchase treasury bills (which is how it returns to the general fund).

[Dragonfli]

7. And those T-bills are owned by the fund and are supposed to be sold to cover shortfalls

None of it actually belongs in the General fund, what ends up there is supposed to be a loan (or an investment so to speak) like any other t-bills.

[WCGreen]

10. And your contributions to the fund are journalized by the SSA

and used to determine how much your benefit will be upon retirement.

Again, it is what it is...

[Major Nikon]

11. FICA goes directly into the general fund

That money goes to buy 'special issuances' which aren't really T-Bills, which is how money from the general fund is transferred to the SS trust fund. When benefits are to be paid, those securities are redeemed, the money goes back into the general fund, and is paid to recipients.

The point is there isn't a separate pot of money out there which holds FICA payments or SS disbursements. It all flows through the general fund by way of the SS trust fund. This made the accounting for the current FICA tax holiday pretty simple. The 2% FICA holiday that's currently in effect is being made up by the general fund.

[Exilednight]

13. You forgot to mention the parts of FICA that go into the general fund. Some of it does go into the

general fund. It started with the Clinton presidency when he borrowed against the SS fund to help balance the budget. The money he borrowed was suppose to be payed back, but instead of paying back SS, Bush came into office and gave away the surplus from the general fund in the form of a tax rebate.

[Jim Lane]

8. It's not correct to say that the money "goes into your FICA account"

Social Security is a pay-as-you-go system. In general, money from current workers funds benefits to current retirees. (Because of the demographic bump of the Baby Boom, which messes up a pure pay-as-you-go plan, the system is now deliberately amassing a surplus, but that doesn't change its fundamental nature.)

For example, consider Lisa, who who earned $30,000 in some past year, that year being one of the 35 years that are taken into account in determining her level of benefit when she retires. None of the FICA tax she paid that year is in any reserved account for her. Instead, when she retires, her wages for that year will be adjusted to current value and then averaged in with the 34 others. That means that the boost to her Social Security benefit from that year's work depends on how much she earned but also when she earned it. A $30,000 salary in 1980 will contribute a lot more to your benefit than a $30,000 salary in 2008.

That's not because Lisa's tax money was put in an account (a lockbox?) in her name, and it earned interest. No, the effect on her initial Social Security benefit depends on the changes in wages since the year of the earning, not on what interest would have been earned on a T-bill or whatever.

I conclude that "tax" is the right word. On the other hand, part of FDR's plan was that there wouldn't be a higher income tax so that the government could pay benefits out of the general fund. Instead, there would be a separate, dedicated tax, to create a feeling of ownership and entitlement, to make it politically difficult for the Republicans to mess with it. In that spirit, it's certainly beneficial to remind people that the money was collected on the basis of a promise and that the promise ought to be kept. In that sense it's different from other taxes.

[WCGreen]

9. Well, the amount you contribute determines how much you will

recieve...

Also, those reports you get every few years from the SSA spells out exactly how much you have put in the system by year.

So if it walks like a duck, quacks like a duck....

[newblewtoo]

14. Your statement while

true should not be misconstrued to mean that the more you put in the more you get out like a straight investment.

Low-wage earners get three times the relative benefit as high-wage earners from Social Security
A study by the Congressional Budget Office indicated the Benefit-to-Tax Ratio for low-income workers was about 200 percent. For high-income workers, this ratio is about 60 percent. For middle-income workers, the ratio is about 100 percent.

Here is the study :
http://www.cbo.gov/ftpdocs/77xx/doc7705/12-15-Progressivity-SS.pdf

I point this out only because it is often used by the right wingnuts to debase the entire Social Security system as a redistribution scheme.

Additionally there are other offsets which limit the amount on can receive if they also have other pensions. Many state and federal workers find themselves subject to "windfall profit" limitations.

[Major Nikon]

20. Essentially it is a redistribution scheme

Those who are at the top of the FICA tax scale pay more for the benefit they receive than those at the bottom.

I see nothing wrong with that, except for the fact that there is a SS cap on wages and no SS is paid on investment income. If SS is an obligation we have to poorer older Americans, everyone should be contributing to this obligation. There should be no wage cap, nor should their be an exclusion for income other than wages.

[Sirveri]

17. Sort of, but it's more like an insurance premium.

Those who pay in more get a larger benefit when they can make an insurance claim.

[Major Nikon]

19. So what happens to the money you put in if you die before retirement age?

Also there isn't a linear arrangement between what you pay vs what your benefit is. The more you pay over your lifetime, the less benefit you receive dollar for dollar. This is because of the bend points the SSA uses in the PIA formula.
http://www.ssa.gov/oact/cola/bendpoints.html

SS is really more of a taxpayer funded insurance plan, which means the premiums you pay are a tax.

[quaker bill]

12. When they take the excess and spend it on weapons

it is a tax.

[kentuck]

15. It really doesn't matter where it goes, in my opinion....

Those taxes are designated for certain purposes, unlike most other taxes. If there was no designated purpose or if there was no taxes called "FICA" taxes, how long do you think Social Security or Medicare would last??

[Scuba]

16. Not nitpicking at all. Being careful of how we frame discussions...

...and the language used to craft arguments is essential. The Republicans are masters at this. We need to be so as well.

[FarCenter]

18. The FICA tax is a tax

It doesn't go to an individual fund. The amount you receive in retirement is only loosely related to earnings, since only a limited number of quarters of earnings are used in the benefit computation. Non-working spouses can draw on the other spouses record, even after divorce, no matter how many marraiges they have had.

And part of FICA tax pays for widows, widower, dependents, and disability benefits.

[kctim]

21. What other things are you forced to contribute to?

[lumberjack_jeff]

22. SS taxes are insurance premiums. n/t

[AngryAmish]

23. Will I go to jail if I don't pay it? Then it is a tax.

I won't go to jail for not contributing to charity. Those are contributions.

And if it is a contribution that those people who say 47% of people don't pay taxes are right.