Legislation was passed in the House on May 23, 2019, just before the August recess. This bill will have some work to do in the Senate and there are a few good reasons why.
FACT 1: The bill will increase the Social Security Tax from 12.4% to 14.8%.
PROBLEM 1: Even the lowest income worker will get hit with this which will be less money they can save on their own making them increasingly dependent on the government and Social Security specifically for retirement.
PROBLEM 2: This will be 2% less your individuals that do save personally for retirement will have which has a snowball effect over the life of an investment career.
FACT 2: Most Financial Planners would advise that your retirement income is at or around 70% of your final year’s salary. Currently, the lowest quartile will earn 80% continuance of wages, and if this bill passes, it will move to 95% continuation of wages for the bottom quartile.
PROBLEM 3: Because you continue to make 95% of your wages in retirement, there will be no incentive for the lowest quartile to save on their own. It effectively dis-incentivizes them from self-saving. This continues to perpetuate the need for the government and reinforces the need for this program.
FACT 3: You pay (split between you and your employer) 12.4% of your wages for the first $132,900 of earnings. That is $16,479.60/year.
PROBLEM 4: Now this one only affects high-income individuals, those making over $266k/year, but for those that do, when this bill removes the cap on taxation, those individuals will contribute 2.4 times more than they pay today. Because these people are mainly savers there can be a significant hit on the amount of dollars ut back into the market vs the amount going into the government.
My Opinion…
From the outside looking in, we are throwing good money after bad. It’s a lot like your dating someone and you realize that the relationship just can’t last, so you try to find a solution to make it last a little longer instead of just trying to find the right one because that would mean that someone would get hurt along the way.
I am no economist, but I would think that there needs to be a thoughtful solution out there. The pragmatist in me is, however, starting to wonder if its the old line from War Games – “The only way to win is not to play at all”.
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