Right now there is a cap on social security taxes at $117,000. If you make more than $117,000, you do not pay above the $117,000. So, if you make a million dollars, you stop paying social security once you have hit $117,000. That means you avoid paying anything into social security for the $883,000 above the cap. Here is how it was explained on The Hill:
Many people don’t know that any income above $117,000 per year is not taxed by Social Security (this limit on the amount of earnings subject to the tax is adjusted annually to keep up with inflation). That means that someone who makes twice the cap this year – $234,000 – pays the tax on only half of his or her wages. And those lucky enough to make at least $1.2 million per year are taxed by Social Security on less than one-tenth of their income.Wadham's make it seem like everyone in South Dakota would be crushed by this, but the reality is that scrapping the cap would eliminate a tax break for just a small percentage. From The Hill
While every one of these senators and representatives earn over $117,000 annually, Census Bureau data shows that only about 1 in 18 workers would pay more if the cap were scrapped, and only the top 1.4 percent (1 in 71 workers) would be affected if the tax were applied to earnings over $250,000.
It gets even more interesting when you look at different states and slices of the population. In the home states of Merkley, Harkin and Sanders (Oregon, Iowa, and Vermont), the top 4.2 percent, 3.5 percent and 4.0 percent of workers, respectively, would pay more if the Social Security payroll cap were phased out.
Even fewer women workers would be affected if the cap were abolished: only about 1 in 36 (2.8 percent) of them would pay more, and the top half of one percent would be affected if the tax were applied to earnings over $250,000. Similarly, only about 1 in 50 black or Latino workers would pay more if the cap were lifted entirely, and about 1 in 200 would be affected if earnings above $250,000 were subject to the tax.By scrapping the cap, you would also be able to be able to give more to seniors.
That has put the cap at the center of the debate over Social Security reform. Raising or eliminating the cap on income subject to tax has been suggested often as a way to improve the program's long-term funding gap. New payroll tax revenue could close the gap by anywhere from 28 percent to 90 percent, depending on the cap's height and to what extent the new revenue is used to boost payouts to high-income households.
Elimination of the cap also figures in a broader discussion aimed at addressing the looming retirement security crisis among middle- and lower-income households. Enhancing Social Security looks like the best solution to that problem.
Under the "Strengthening Social Security Act of 2013" introduced by Senators Tom Harkin (D-Iowa) and Mark Begich (D-Alaska), the taxable maximum would be phased out gradually by 2018. The plan would also increase annual cost-of-living adjustments and change benefit formulas to increase benefits for all seniors by about $70 monthly. Along with boosting benefits, the plan would extend the trust fund's solvency by 16 years, according to the Social Security actuaries.So, scrapping the cap would improve the health of social security and provide more for our seniors. Mike Rounds wants none of that. He and the SD GOP feel it is more important to protect their well-to-do backers.