During election season, hardly a day passes without hearing about Social Security’s ultimate financial failure. While there is reason for concern, there is a solution that can effect immediate change. That answer is to raise the tax cap, resulting in wealthier Americans paying their fair share.
According to The Heritage Foundation, the agency will begin to collect less money than it has promised to pay. Furthermore, CBS News reports that its trust fund reserves will likely be depleted by 2033. As a result, “beneficiaries would face a 25% shave on their monthly checks.”
Discussion about saving Social Security comes up every election cycle, and every time it does so does raising the tax cap, a program feature since it started in 1937 after the Great Depression. Earnings over the cap are not subject to Social Security payroll tax — 6.2% for workers and employers.
Former Secretary of Labor Robert Reich blames inequality as why Social Security is in danger; in the video below, he argues against the rumor that Baby Boomer retirees are not to blame.
In 2023, people only pay Federal Insurance Contributions Act (FICA) taxes for $160,200 of their income.
Without Social Security, research finds that two-thirds of older adults would be in poverty.
The Peter G. Peterson Foundation states that “about 6% of the working population earns more than the taxable maximum (tax cap).” Generally, individual income taxes in the United States are progressive, meaning higher-income taxpayers pay a larger share.
Nonetheless, low-and-moderate-income workers pay a more significant percentage of their income compared to higher-income taxpayers.
For example, a person earning $67,000 yearly would owe $4,154 for their share of Social Security Taxes. Conversely, taxpayers “earning triple that income — or $201,000 — would owe $8,854, which is just more than double the amount of tax.”
Eliminate or Lift the Tax Cap?
The Congressional Budget Office (CBO) calls the Social Security tax cap regressive because higher earners pay less taxes than lower earners.
One of Congress’s vocal proponents of eliminating the income cap is Senator Bernie Sanders (I-Vt.). His proposed Social Security Expansion Act bill would do just that.
The Senator’s legislation also calls for an end to “special tax breaks on capital gains and dividends for the top 1%.”
Based on numerous reports, whenever Congress is given a choice between eliminating the tax cap or raising the taxable threshold. The choose the latter.
Written by Cathy Milne-Ware
Sources:
CBS News: One way to fix Social Security? “Smash the cap.” By Aimee Picchi
Peter G. Peterson Foundation: Should We Eliminate the Social Security Tax Cap? Here Are the Pros and Cons
The Heritage Foundation: The Impact of Removing Social Security’s Tax Cap on Wages; By D. Wilson and Gareth Davis (January 19, 1999)
Bernie Sanders: Making The Rich Pay Their Fair Share in Taxes
CBO: Increase the Maximum Taxable Earning That Are Subject to Social Security Payroll Taxes
Featured and Top Image Courtesy of Unsplash+
Inset Image by Vladimir Soares Courtesy of Unsplash
