Archived Story

Jack Strayer: Festering FICA fiasco

Published 12:18pm Friday, May 6, 2011

When filing your federal taxes, you probably noticed the box on your W2 form marked FICA.  That’s the Federal Insurance Contributions Act, a.k.a. the payroll tax.  It is a 7.65 percent tax on your gross income.  Employers match the 7.65 percent.  You are paying 6.2 percent  into your Social Security and the remaining 1.45 percent into Medicare.  All the FICA taxes that you pay each year, plus your employer’s matching contribution to FICA, are deposited into Social Security and Medicare.  In short, the FICA taxes you pay are funds that cover your Social Security checks and your Medicare benefits after you retire.
Earlier this year, the Obama administration and the U.S. Congress extended the Bush income tax cuts.  The bipartisan agreement included a reduction in the individual Social Security portion of the FICA tax rate from the current 6.2 percent to 4.2 percent.  This is a one-year-only tax break and it means that Social Security will take a big hit in revenue – about $120 billion, according to the National Center for Policy Analysis (NCPA), the Dallas-based research institute.  The employer matching contribution to F.I.C.A. remains unchanged at 7.65 percent and is unaffected by the cut.  The tax cuts were touted as a stimulus package for individuals in an effort to jump start the fragile economic recovery.
As Forrest Gump would say,  “Stupid is as stupid does!”  Many readers are probably cursing me right now for suggesting that a tax cut is stupid.  Well, excuse me, but cutting FICA taxes right now is stupid!
The Social Security Trust Fund is already paying out more than it is collecting in FICA taxes, creating a $107 trillion unpaid liability in the years ahead, according to the NCPA.  That’s because 78 million baby boomers will soon begin receiving Social Security checks and Medicare benefits including prescription drugs.
The Social Security Trust Fund will be drained by 2020, according to the most recent estimates from the Trust Fund trustees.  Both Social Security and Medicare will go belly up by 2030 unless we cough up the additional $107 trillion.  Sadder still, these estimates are based on a good economy with average unemployment.
Currently, the FICA tax is only levied on the first $106,800 of individual income.  This tax cap is likely to be dramatically increased in the next few years.  Most people aren’t aware that a tax cap exists for FICA.  But apparently there is a lot that people don’t know about FICA, including President Obama and the U.S. Congress.  After all, they cut the FICA tax this year, instead of increasing it.
After the current FICA reduction expires next year, the U.S. Congress and the Obama administration will have their work cut out for them.  Look for a major increase in the cap on earnings.  Look for means-tested Social Security checks in the future.  Look for better ways to supplement your retirement savings!
If you are nearing retirement age and are depending on Social Security and Medicare to be there when you are ready to receive it, you better start paying attention, as well as paying even more for your FICA.

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  • mebbigt2

    I understand the Social Security Trust Fund is being severely depleted, but maybe a lot of folks don’t know that a factor that contributes greatly to that depletion is the increasing number of people UNDER age 40 that are applying for and RECEIVING Social Security Disability benefits. So, needless to say, those amounts are also coming out of OUR money we have paid in all of our lives! Maybe some of those folks are truly deserving of the Disability benefit, but since when is “bi-polar, ADHD,ADD” a qualification for Disability benefits the way so many lawyers are advertising on TV to get people to go thru them to apply for these benefits!

  • Username75

    Most of Our National debt, Is owed to the Agencies
    Recieving funds under “FICA” Social Security,
    Unemployment Insurence, and job Retraining.
    They are Fully funded unless We Default on Our own debt to Ourselves.
    What We owe to China, Japan, and Britan is Minisule compared to what We owe ourselves.
    It is the Dirty Political Secret, that just about the Time
    Democrats get us out of debts, along comes a Republican
    administration, driving us even before, we reduced to
    Original indebtedness.
    Investing in Social security has much more saftey,
    than an Investment made on Wall Street, and is better
    regulated than the “Big Boy” Gambling Halls of Wall Street.

  • Username75

    Before Reagan Republicans only wanted the Intrest on Your Social Security, and Unemployment Insurence payments.
    NOW……..They want thier hands also on the Principle.

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