Social Security is heading for depleting its fund, with a great possibility of becoming insolvent by 2023. This scenario would result in a 25% decrease in the beneficiaries’ monthly checks. But, experts say the situation is still salvageable by raising the Social Security tax cap.
According to CBS News, the Social Security tax cap refers to any income over the earnings cap that will not be subjected to the Social Security payroll tax – workers currently pay 6.2% of their wages and an additional 6.2% for employers. Any earnings above the income cap of $160,200 are exempted from the payroll tax.
Effects of Raising the Tax Cap
GOBankingRates report that raising the income cap to $250,000 or eliminating it would shift the burden from the middle class to wealthy, high-wage earners. Raising the income cap could replenish the trust fund reserves and keep the program running for the next decade. Congressional Budget Office (CBO) revealed a December analysis that found eliminating the cap would keep the trust fund solvent until 2046.
Sarah Rawlins, a program associate at CEPR, said taxpayers who earn over that cap could pay 1% of their income or even less. However, those who earn less than $160,200 cap in 2024 could pay six times higher.
Some experts and lawmakers do not support the risk of raising the cap. The CBO calls the Social Security tax cap “regressive” as it would make low- and middle-income workers pay a much greater share than the rich.
Some lawmakers are proposing other solutions, including removing the tax cap and addressing Social Security’s funding problems.
Senator Bernie Sanders (I-Vt.) and Senator Elizabeth Warren (D-Mass.) introduced legislation to stabilize the Social Security trust fund by expanding its benefits and ensuring it is fully funded for the next 75 years.
Meanwhile, the Republican Study Committee proposed raising the retirement age for claiming Social Security from 67 to 70 years old.
Other solutions include raising the tax cap for people earning $250,000, increasing the payroll tax rate from 12.4% to 15.6%, and privatizing Social Security.