The poor and low-income folks of America receive many government subsidies. But here’s one subsidy that few people are aware of.
Social Security retirement checks are HEAVILY subsidized for low earners. Moreover, for those whose earned income (adjusted for inflation) averages above about $126,000 (called “AIME”), they get ZERO money back on their 6.2% SS payments (12.4% for the self-employed) on that “excess” income confiscation.
Essentially, those annually earning more than $126,000 up to $160,200 in 2023 will find that 100% of their SS payments (6.2% each, paid by both employer and employee) above $126,000 are to help subsidize the low wage earners who pay VERY little for their benefits. The high-income payers will get not one dime extra for these higher payments.
This 2:40 minute video is a good summary of the SS program, though the numbers are not up to date. There are three tiers of payouts, based on one’s annual earnings (though the specific figures in the video are outdated).
For 2023, for those who earn an average monthly income (AIME) up to $1,115, they get an astonishing 90% SS pension (so does everyone on that first tier). On the AIME earned between $1,116 and $6,721, the payer receives 32% as a SS pension. For AIME above $6,721, your SS retirement payment increases 15%.
But there’s a SS payout cap. The most you can receive is $3,506 a month. So, in reality, to the extent you earn (and pay SS taxes on) more than about $126,000 annual income, you won’t receive so much as a “thank you” note.
Moreover, current discussions about “saving social security” call for full SS taxes (without any benefits) on income up to $400,000 — or even ALL earned income — totally eliminating the cap. It looks like we’ll be raising the bar on “soak the rich” thinking.
This low-income subsidy works particularly well for people who start contributing into SS later in life (including immigrants), or people who work part-time. To qualify for a SS pension, one need work only part-time for 10 years, making about $1,500 every three months. On ten years of such income, you and your employer would pay a total of about $15,000 into SS. Yet SS will pay you $1,115 a MONTH for the rest of your live — plus full annual COL increases.
Such a deal! But it helps explain the Ponzi nature of SS payouts.Successful people are getting screwed by SS, and don’t even know it. Unless they read my stuff!
For a more detailed but very readable explanation of how SS payouts work, I strongly recommend this Forbes article.