Raising the cap to $400,000

Social Security tax
Image credit: © Jon Anders Wiken | Dreamstime.com

Besides the Sanders proposal, there have been a number of other proposals to increase, eliminate, or otherwise adjust the payroll tax cap as a way to shore up Social Security’s finances.

President Joe Biden has floated the idea of applying the Social Security payroll tax to earnings over $400,000 instead of the $250,000 proposed in the Sanders bill. This echoes his campaign stance not to raise taxes on anyone making less than $400,000 per year, which he reiterated during his State of the Union address in February.

Biden’s campaign proposal to increase the payroll tax cap to $400,000 would only delay Social Security’s insolvency until 2044. After that point, Social Security recipients would face the prospect of an 11% benefit reduction.

While Biden called for “protecting and strengthening” Social Security when introducing his fiscal 2024 budget in March, he stopped short of proposing a specific plan to address the trust fund shortfalls. He did hint at plans to work with Congress to strengthen the program, but without making any benefit cuts.

Another proposal aimed at raising the cap to $400,000 is the Social Security 2100 Act, first introduced by Rep. John Larson (D-CT) in October of 2021.

Social Security Larson
Rep. John Larson (D-CT) Image credit: larson.house.gov

The Democrat-supported bill, which has not yet been reintroduced in Congress in 2023 and has no Republican support, would apply the Social Security payroll tax to earnings over $400,000 in addition to earnings below the current maximum taxable amount ($160,200). The gap—or “donut hole”—between the two would narrow over time as the maximum taxable amount increases and the $400,000 threshold remains unchanged.

Fact Sheet from Larson’s website says the bill would mean “the wealthy pay the same rate as a waitress earning $30,000 a year. This provision would only affect the top 0.4% of wage earners.”

Per a blog from the Peter G. Peterson Foundation, since 1975, the taxable maximum has generally been increased each year based on an index of national average wages. About 6% of the working population earns more than the taxable maximum.

Low- and moderate-income individuals pay a higher proportion of their income in payroll taxes than do higher-income taxpayers. In part, that situation stems from the existence of the tax cap for Social Security. For example, someone with wage income of $67,000 per year would owe $4,154 for their share of Social Security taxes. However, someone with triple that income—or $201,000—would owe $8,854, which is just more than double the amount of tax.

The previous version of the bill includes 13 provisions that would increase Social Security benefits, 12 of which would be temporary, applying for only five years. Larson’s fact sheet says the bill would reduce Social Security’s 75-year shortfall by about half and extend “the date at which benefits would be cut by 20% by nine more years from 2035 to 2044.”

Next Page: Other ideas being floated

2 comments
  1. You keep saying the wealthy pay a less percentage than the waitress. But you don’t point out that the wealthy’s S.S. payment is capped at a maximum like everyone else. If you make 200k a year or 2 million a year, you don’t get any more increase in benefit. The benefit is based on that capped taxable amount of $160k. This is FAIR. Unless you see S.S. as a welfare plan – which of course Bernie & Pocahontas do!

  2. As someone concerned about the future of Social Security, I believe that implementing gradual increases in the retirement age is a crucial step towards fixing the system. After reading the article “3 Proposals to Fix Social Security,” it became clear to me that adjusting the retirement age is a practical solution to ensure the program’s long-term sustainability.

    Considering the rising life expectancies and changing demographics, it is necessary to make adjustments that align with the current reality. By gradually raising the retirement age, we can address the challenges posed by an aging population and ensure that Social Security remains viable for future generations.

    This proposal recognizes the significant improvements in healthcare and overall quality of life that have resulted in longer, healthier lives for many individuals. It acknowledges that people are now able to work and contribute to society for more extended periods. Adjusting the retirement age would reflect these societal changes and distribute the financial burden more evenly.

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