A Start

$170,494,328,298

The number above is a staggering number.  Over $170 billion.  According to IRS figures from 2010, that is the shortfall that is created by exempting amounts over $110,000 in income to Social Security tax.  In 2010, the adjusted gross income of all tax filers was over $8 trillion.  Not a bad haul for our citizens.  Using the chart linked to above, and because the figures are not divided into above or below the exemption threshold, I lowered the threshold a little.  Using $100,000 as the exempt income for paying Social Security tax, I was able to deduce that over $4 trillion ($4,059,388,769,000 or so) was not subject to any Social Security tax at all.

Multiplying that $4 trillion number by the current 4.2% Social Security tax rate is how I arrived at the number at the top of this post.

Now, I don’t know about you, but I am little tired of hearing about the potential solvency of Social Security.  Because of the way tax laws are written, $170 billion was not put in to the fund in 2010 alone.  What if all income was subject to Social Security tax?  Would we still have to hear about more being paid out than is being contributed?  I doubt it.

As it stands now, if I made $110,000 this year, I would pay exactly the same amount in Social Security tax as Alex Rodriguez.  Rodriguez made, in salary alone from the Yankees, about $29 million (source).  Whether or not a baseball player deserves to be paid that much is for another day, but he has to be commended for maximizing what a team would pay him; you and I would do the same thing and go to work for the highest bidder if we could.  His salary is a result of the way that baseball works.  However, Rodriguez paid $4,620 in Social Security tax on his salary from the Yankees; had the tax been applied to his entire salary, he would have paid $1,218,000.

When you see or read that Plans A and B have already failed when it comes to the “fiscal cliff,” ask yourself why Congress does not search for easy solutions like applying Social Security taxes to all incomes.  I know that nobody really wants to pay more taxes, but to leave a vast resource untapped is like conceding defeat before the contest even begins, and that is essentially what happens with the application of Social Security tax in relation to income.

Now, I have to admit that what I have written is not exactly original to me.  I had not even thought about it myself until I was talking to my dad the other day and he brought it up.  The reason it will not work is because it is basic common sense, and that has been lacking in Congress for a long time.

Resolving the financial mess our country is in is going to take a disciplined and reasoned approach.  Simply adjusting tax rates will not be enough, just like reducing spending will not be enough.  An examination has to be done of the entire federal budge and how funds are allocated and spent.  How much is spent on duplication of procedures and processes?  How much is spent overpaying for things like a hammer or stapler?  If you were to take your approach to household budgeting (assuming you do a budget and keep up with your finances with a check register, etc.) and apply it to the federal budget, what would that look like?  If you are short on money each month, would you benefit from a raise at work?  Or by watching what you spend on ancillary items?  Or would you utilize a combination of the two to achieve better financial security?  I have utilized the combination method, and it has worked better than either of the two individual approaches by leaps and bounds.

 

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