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Social Security Taxes andBenefits
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Millions of dollars in 2008
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Finance: FICA Tax
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From Virginia Reno, National Academy on Social Insurance
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From Virginia Reno, National Academy on Social Insurance
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U.S. Treasury
FICATAXES
OASDI Trust Fund
Valued at $2.4 trillionat the end of 2008
Currently, we collect more in FICA taxesthan we pay out in benefits and expenses.
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Projections in 2010 and beyond are based on intermediateassumptions
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Fat-Cat Assemblyline worker
Fast foodworker
How do OASDI benefits and taxes influenceworkers in different income groups?
A Hoya fan!
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FICA Tax
What would a fat-catpay?
If he earns $10,000,000annually, his FICA tax would be:12.4% of the first $106,800 =$13,432
Plus2.9% of the entire amount =$290,000Total FICA Tax = $303,243Half of this $151,622 iswithheld
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FICA Tax
What would an assemblyline worker pay? If he earns near the U.S. median
income, about $45,000 annually, his FItax would be:
12.4% of $45,000 = $5,580Plus2.9% of $45,000 = $1,305Total FICA Tax = $6,885$3,442 is withheld
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FICA Tax
What would a fast-foodworker pay?
If he earns the U.S. minimum wage(currently $7.25 per hour) working full time , all
year around (2200 hours), his income will beabout $15,950 annually, his FICA tax would be:12.4% of $15,950 = $1,978Plus2.9% of $15,950 = $463Total FICA Tax = $2,441, $1,220 is
withheld
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FICA is a regressive tax
The Fat-Cat earns$10,000,000 annually and pays
$303,243 in FICA taxes. His taxrate is about 3%.Withholding is about 1.5%.
The assembly lineworker earns $45,000 and
pays $6,885 in FICA taxes.His tax rate is 15.3%.Withholding is 7.65%.
The fast-food workerearns $15,950 and pays
$2,441 in FICA taxes. His trate is 15.3%.Withholding is 7.65%.
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Calculating benefits: at thenormal retirement age
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Suppose the Fat-Cats AIME is$7,000.His benefit is:90% of $711 = $640, plus
32% of ($4,288-$711) = $1,145,plus15% of ($7,000-$4,288) = $407.Total OASI benefit : $2,192 permonth
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Suppose the Assembly line workersAIME is $3,000.His benefit is:90% of $711 = $640, plus
32% of ($3,000-$711) = $732.Total OASI benefit : $1,372 per month
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Suppose the fast food workers AIME is$1,000.His benefit is:90% of $711 = $640, plus
32% of ($1,000-$711) = $86.Total OASI benefit : $726 per month
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Benefits are progressive
Average monthlyearnings were $1,000.Monthly benefit was
$726.Replacement rate:benefit/income = .73
Average monthlyearnings were $3,000.Monthly benefit was
$1,372.Replacement rate:benefit/income = .46
Average monthlyearnings were $7,000.Monthly benefit was
$2,192.Replacement rate:benefit/income = .31
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