Current Retiree's Underpayment of FICA Taxes

Many current retirees believe they have paid their fair share of FICA taxes and are entitled to the Old Age Survivors Insurance (OASI) benefit paid by Social Security and Medicare. Many seem to not understand the willingness of current workers to continue Social Security.

To better educate the current retiree as to why current workers are repulsed by Social Security, a calculation was done to determine what affect if any, the effect of todays FICA tax on previous workers would be.

To begin with, the Average United States Wage for years 1937 through 1950 had to be calculated. These are not available from Social Security. The CPI was used to estimate these years average wages. The wage based subjected to FICA was adjusted for years prior to 1988 using the change in the United States Average Wage. This would keep the base current and consistent with the OASI benefit formula and current with standard of living at the time.

The maximum tax in 1937 was 2% and only included OASI. Neither DI nor Medicare program had begun. The difference between what was paid at the specific rate and the current 15.3% rate is the net difference or additional FICA tax needed for a specific year. The current United States Treasury rate was then applied to the additional OASI tax and previous fund balance to determine what finance charge would be applicable.

Based on a 40 year work history, the total amount of additional FICA taxes over the workers life time was calculated. This would be equivalent to reducing the workers wage and benefits by this amount. Since the amount was never taxed and never paid, the worker was able to keep this additional wage and benefit and use it to increase their net-worth over time. Therefore, the amount of the underpayment of FICA taxes was subjected to the United States Treasury Rate. Since no one has paid this additional tax, the balance calculated as of the year 2000 is listed for both the Average Wage Earner and the Maximum Wage Earner.

What the table represents is the amount due from each worker for the reduced FICA taxes they paid over their life times. Another way to interpret this table is for the retiree to subtract this amount from their current net-worth to figure out what they currently would have, had they been subjected to the same FICA rates as current workers.

The question is, would a current retiree like to contribute the listed amount to continue receiving OASI and Medicare benefits? If not, why then should current workers continue to support Social Security and Medicare? This table represents an equilization of costs between past workers and todays workers.

CURRENT RETIREE ADDITIONAL CONTRIBUTIONS
WORK HISTORY		AVERAGE WAGE EARNER			MAX WAGE EARNER
FIRST YEAR	LAST YEAR	ADDITIONAL FICA	INTEREST	BALANCE	ADDITIONAL FICA	INTEREST	BALANCE
1937	1977	$13,352	$248,739	$262,091	$40,356	$679,979	$720,335
1938	1978	$13,469	$243,691	$257,161	$41,365	$675,444	$716,809
1939	1979	$13,597	$238,725	$252,322	$41,890	$667,904	$709,794
1940	1980	$13,751	$233,714	$247,464	$42,338	$659,658	$701,996
1941	1981	$13,805	$228,398	$242,203	$42,488	$649,671	$692,159
1942	1982	$13,860	$223,077	$236,937	$42,731	$640,422	$683,153
1943	1983	$13,927	$217,764	$231,692	$42,775	$630,495	$673,269
1944	1984	$13,893	$211,654	$225,547	$42,664	$619,563	$662,227
1945	1985	$13,828	$204,988	$218,816	$42,531	$606,573	$649,104
1946	1986	$13,727	$198,143	$211,870	$42,195	$591,616	$633,811
1947	1987	$13,630	$191,256	$204,886	$41,759	$576,038	$617,797
1948	1988	$13,397	$184,131	$197,529	$41,168	$559,939	$601,107
1949	1989	$13,114	$175,875	$188,989	$40,509	$542,450	$582,959
1950	1990	$12,745	$167,012	$179,758	$39,613	$520,921	$560,533
1951	1991	$12,394	$158,756	$171,149	$38,646	$498,227	$536,873
1952	1992	$12,049	$150,850	$162,899	$37,747	$477,576	$515,323
1953	1993	$11,684	$142,645	$154,328	$36,849	$457,432	$494,281
1954	1994	$11,297	$134,187	$145,485	$35,863	$435,844	$471,708
1955	1995	$10,941	$126,565	$137,506	$34,935	$415,996	$450,930
1956	1996	$10,568	$118,780	$129,348	$33,984	$396,143	$430,127
1957	1997	$10,169	$110,656	$120,824	$32,950	$375,102	$408,052
1958	1998	$9,775	$102,857	$112,632	$31,832	$352,947	$384,780
1959	1999	$9,379	$95,196	$104,574	$30,669	$330,490	$361,159

References used:

Consumer price index table 1913 to 1998 for each month

United States Treasury Rate paid each month on Social Security Obligations

United States FICA rates reported by Social Security Administration

United States Average Wages reported by Social Security Administration for years 1951 till 1998.