Eliminate 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 with increases in the national average wage. Today, the cap covers about 84 percent of total earnings. Eliminating the cap so that all earnings would be subject to Social Security’s payroll tax would help close the program’s funding gap. If your income is under $110,100, you would see no change. If you make above that amount, you (as well as your employer) would pay the 6.2 percent payroll tax on your remaining wages. If all earnings were immediately subject to the Social Security tax, the new revenue is estimated to fill 86 percent of the funding gap.
PRO: Eliminating the tax cap would make Social Security’s financing more fair. Only 6 percent of workers earn more than the current cap of $110,100. They would pay on all their earnings throughout the year just as everyone else does, and would get a modest increase in benefits. This change alone would just about eliminate Social Security’s long-term financing gap. Combining this with other changes could wipe out the gap and pay for needed benefit improvements. (Virginia Reno, National Academy of Social Insurance)
CON: At first blush, the idea that people should pay Social Security taxes on all of their earnings seems both fair and attractive. However, this “solution” would cause huge Social Security checks for very high-income people. If millionaires pay Social Security taxes on all of their salary income, the maximum annual benefit payment could reach over $150,000 a year. This development would not bankrupt the program, but it would change its nature. Social Security was not intended to provide such large benefits. (David John, Heritage Foundation)