WHAT’S BEHIND THE BIG RISE IN 2017 OASDI WAGE BASE?

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Social Security’s Old-Age, Survivors and Disability Insurance wage base is to increase in 2017 to $127,200 from $118,500 in 2016.

This $8,700 increase, unprecedented in terms of the dollar amount, is more than double most previous increases. But was the increase unexpected? The OASDI wage base is to rise in 2017 because a cost-of-living increase is to take effect in December. This increase triggers the formula used for determining the OASDI wage base, effective Jan. 1, 2017.

Cost assumptions used to calculate the wage base were defined in the “2016 OASDI Trustees’ Report” as values related to future trends in critical factors that affect the trust funds.  Under the intermediate-cost and low-cost assumptions, the increase in the wage base was somewhat expected. The assumptions set the 2017 wage base at $126,000, or $1,200 less than the actual amount. Under the high-cost assumption, the wage base remained $118,500.

The intermediate-cost assumptions were estimates of future demographic, economic and program conditions. Although the wage-base projections based on those assumptions were unofficial, employers may use them for budgeting and long-range planning.

The low-cost assumptions assume relatively rapid economic growth, high inflation and favorable demographic and program-specific conditions, while the high-cost assumptions assume relatively slow economic growth, low inflation and unfavorable demographic and program conditions.

The formula to calculate the wage base for years after 1994 was established by law and equal to $60,600 multiplied by the ratio of the national average wage index for the second previous year to that for 1992, with the result rounded to the nearest multiple of $300. If the result is less than the current base, the wage base remains unchanged.

In this instance, the 2017 wage base was equal to $60,600 times 48,098.63, the average wage index for 2015, divided by 22,935.42, the average wage index for 1992. This equals $127,086.27, which is rounded to $127,200, an amount that exceeds the 2016 wage base of $118,500.

The national average wage index for 2015 was 3.48 percent higher than the index for 2014, the Social Security Administration said. This was less than the 3.55 percent increase in 2014 and was the second-highest percent increase since 2007, the SSA said.

The trustees’ report defines the national average wage index as “a series that generally increases with the average amount of total wages for each year after 1950, including wages in noncovered employment and wages in covered employment in excess of the OASDI contribution and benefit base.”

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