Increase the Payroll Tax Cap
The Social Security payroll tax currently applies to annual earnings up to $110,100. Any wages earned above $110,100 go untaxed for Social Security. This cap generally increases every year as the national average wage increases. Today, the cap covers about 84 percent of total earnings in the nation. Raising the cap to cover a higher percent of total earnings would help close Social Security’s funding gap. How much depends on how high the cap is set and how quickly the cap would be raised to reach that level. One commonly mentioned goal would raise the cap to cover 90 percent of all earnings, which in 2012 would have meant a cap of about $215,000. This would mean any employee earning more than the current tax cap of $110,100 (as well as his or her employer) would have to pay more payroll taxes, up to about $6,500 per year for those earning $215,000 a year or more. Raising the cap to 90 percent is estimated to fill 36 percent of the funding gap.
PRO: Lifting the cap to cover 90 percent of all earnings is sensible and fair. Only 6 percent of workers earn more than the current cap of $110,100. It is fair for top earners to pay more into Social Security, and they would get a bit more in benefits. This change reflects the intent of Congress in 1977, when it set the cap to include 90 percent of earnings. Congress also provided for automatic adjustments for average wage growth so that the cap would continue to cover 90 percent. But with today’s top earners enjoying much bigger gains than everyone else, the cap now covers only about 84 percent of all earnings. This proposal, together with other changes, could keep Social Security strong and pay for benefit improvements. (Virginia Reno, National Academy of Social Insurance)
CON: In general, increasing taxes is a serious mistake. It reduces the amount that Americans have to spend on their family’s food, housing, clothes, education, etc. This bad idea would cause a hefty tax increase for middle-income taxpayers while not affecting the rich. It would especially hurt the self-employed and certain smaller business owners. To make matters worse, this tax increase delays Social Security’s problems by only eight years. It does not fix them. (David John, Heritage Foundation)