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I Should Explain — Why Now?
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I Should Explain

by Bryan

I keep forgetting that most people don’t actually know what I’m talking about when I say “lift the cap on FICA” and I should explain.

If you actually work for a living you pay what are often called “withholding taxes” which will appear on your W-2 form as FICA. The Federal Insurance Contributions Act [FICA] is one of the two laws that govern the collection of taxes to fund the Social Security insurance program and the Medicare insurance program. If you are self-employed, your contributions are covered by the Self-Employment Contributions Act, but it covers the same taxes.

The tax rate for Social Security is 12.4%, and for Medicare, it’s 2.9%, but the cost is split equally between the employer and employee, so you only see 7.65% deducted from your wages. The Medicare rate applies to 100% of your wages, from the first dollar you are paid. The Social Security rate is capped, and you only pay the 6.2% on the first $102,000 that you make in a year.

If you are self-employed there are some differences because you are both the employer and employee. First, it only applies to 92.35% of your gross income because the other 7.65% is the employer’s half of the tax, and you have to pay the entire 15.3% on the remainder. If the adjusted income is more that $102,000, you pay only the 2.9% rate on income above that amount.

What I’m proposing to fund Medicare-for-All [single payer] is simply eliminating the cap on the Social Security tax, and use the extra money to fund the expansion of the program.

There aren’t really that many people or businesses that will be affected by this change, but they are the people who have been prospering while the majority of people have seen their wages stagnate.

All of the talk surrounding the current bills in Congress talks about calculating various formulae to deal with subsidies, and balancing priorities in funding. Removing the cap in these two bills takes care of all of those problems and it certainly is a better idea than telling people they must give money to for-profit businesses.