In an opinion piece for Bloomberg News, Teresa Ghilarducci explains why Congress should eliminate the payroll contribution cap on Social Security. The current cap is $160,200, which means that at least 500 Americans make their full contribution to Social Security in the first few days of this year. Most Americans, however, contribute to Social Security throughout the year.
If Congress lifted the cap on Social Security, not only would it be fairer, but it would strengthen the Social Security Trust Fund significantly. The people who make their full contribution to Social Security in the first days of January can well afford to continue to contribute. They represent only five percent of the population.
How do Social Security contributions work? They are generally split between employers and workers. Each contributes 6.2 percent of their income up to $160,200 in 2023. But, that payroll contribution is not as large as it once was because the 12.4 percent of income contribution does not include non-taxed benefits like health insurance. And, over the last several decades these non-taxed benefits have risen faster than wages.
At this moment, Social Security has enough money in its Trust Fund to pay full benefits until 2033. And, it has never not been able to pay full benefits. But, to keep Social Security paying full benefits, Congress must act.
Congress could increase contributions from 12.4 percent to 15.87 percent, a contribution increase of about 1.75 percent for employers and employees, to keep Social Security able to pay benefits for the next 75 years. But, that would be a very heavy and unlikely political lift.
It would be much easier for Congress to eliminate or raise the cap on Social Security contributions. According to the Congressional Research Service, if it eliminated the cap, the Social Security Trust Fund would be able to pay full benefits for 35 additional years.
Requiring all Americans to pay into Social Security for the entire year would affect just five percent of the population and would add $150 billion to Social Security’s Trust Fund. Of note, Medicare does not have an income cap.
Older Americans rely heavily on Social Security. More than six in ten depend on Social Security for at least half of their monthly income. One in three of them depend on Social Security for 90 percent of their income. Congress must help protect them and eliminate the cap on Social Security contributions.
Here’s more from Just Care:
- People with disabilities face undue delays getting Social Security benefits
- Expand Social Security, don’t means test it
- Social Security benefits will increase nearly 9 percent in 2023
- Poll: More than 75 percent of Americans support strengthening Social Security
- What are your Medicare premium and other costs in 2023?
…in total agreement.
It’s time the rest of us stop carrying the weight of the wellthy on our shoulders (which includes members of Congress [most of whom are wealthy themselves] who make at minimum a 174,000$ a year salary that is above the cap as well and also receive a generous lifetime pension on the taxpayer dime).
Being a retired high-wage earner, now retired, I always believed the salary cap on SSI taxes was a regressive form of taxation. In a society that has typically supported a progressive form of taxation, this cap was an outlier. However, eliminating the cap for individual taxpayer without addressing the business matching taxation may put a burden on businesses. I believe that this matching portion needs to be addressed to reduce this burden. A few ideas would to extend the business cap to a fixed higher level, or better yet, a sliding reduction in percentage match at higher salaries.
But, the bottom line is that the individual salary cap should be eliminated making the SSI taxation a more equitable and progressive form of revenue.
This regressive tax argument only makes sense if Social Security is an entitlement vs. a benefit. If you eliminate the cap, the next things they will do is means testing, increase the retirement age and then increase both the contributions as well as the types of income.
After this is achieved, there will be many more entitlements added to the program that will exceed the revenue to where in 30 years it will need to be rescued again.