Increase Payroll Tax Cap
The Social Security payroll tax currently applies to annual earnings up to $118,500. Any wages earned above $118,500 go untaxed f... [Show More] or 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. This would mean any employee earning more than the current tax cap of $118,500 (as well as his or her employer) would have to pay more payroll taxes.
Increase Payroll Tax Cap (Pro)
1. Make Social Security financing more fair by requiring top earners to pay somewhat more into Social Security
2. Eliminate more than a third (36 percent) of Social Security's projected financing gap over the long term.
Increase Payroll Tax Cap (Against)
1. Cause a hefty tax increase that will hit middle-income taxpayers while not affecting the rich. It would especially hurt the self- employed and certain smaller business owners.
2. In general, increasing taxes is a bad idea. For one thing, it reduces the amount that Americans have to spend on their own and their family's food, housing clothes, education, and so on. Additional taxes that seem like a trivial amount to people in Washington may cause real problems to normal Americans.
Eliminate Payroll Tax Cap
The Social Security payroll tax currently applies to annual earnings up to $118,500. Any wages earned above $118,500 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 $118,500, 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.
Eliminate Payroll Tax Cap (Pro)
1. Eliminating the cap on earnings subject to Social Security taxes would call on top earners to contribute more toward the basic economic security of the nation's elderly and families, commensurate with top earners' ability to pay.
2. Equalize the duration of Social Security taxes throughout the year, so that the top 6 percent of earners would pay into Social Security all year long, just as the other 94 percent of workers do.
Eliminate Payroll Tax Cap (Against)
1. Today, a retiree's benefits are based only on the income on which he or she pays Social Security payroll taxes. Because of this, the maximum Social Security benefit that even the wealthiest American can receive is just over $30,000 a year. 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.
2. It breaks the link between earnings and benefits. So far, a retiree's Social Security benefits have always been based on the career earnings on which he or she has paid Social Security taxes. Dropping that principle would open the door to other substantial changes in Social Security.
Increase Payroll Tax Rate
Employers and employees each currently pay a 6.2 percent tax to Social Security on earnings up to $118,500. Self-employed workers pay both the employer and employee share, for a total of 12.4 percent. One option to help close the Social Security funding gap would be to raise the payroll tax rate for all workers and employers. For instance, on a $50,000 annual salary, increasing the payroll tax rate to 6.45 percent would increase both the annual employee and employer contribution by $125 each. Changing it to 7.2 percent would increase the annual employee and employer contribution by $500 each. The rate increase could occur gradually or all at once. Increasing the payroll tax rate from 6.2 percent to 6.45 percent immediately is estimated to fill 22 percent of the funding gap. Increasing the payroll tax rate gradually over 20 years from 6.2 percent to 7.2 percent is estimated to fill 64 percent of the funding gap.
Increase Payroll Tax Rate (Pro)
1. Social Security does not need additional income now, but almost certainly will within the next 25 years. Policymakers should act soon to schedule an increase in the payroll tax rate to take effect in the future when more money will be needed.
2. Policymakers could act now to schedule a gradual rate increase. A gradual increase of 1/20th of 1 percent each year for 20 years, from 2017 through 2036, would eliminate nearly two- thirds of the program's projected 75-year shortfall. For an average worker, the additional payment would amount to about 50 cents more a week each year— "barely the cost of a pack of chewing gum," as one advocate of this policy has noted.
Increase Payroll Tax Rate (Against)
1. It would increase taxes for everyone, no matter what their income. Higher payroll taxes would cause increased unemployment.
2. Added uncertainty that such a move would cause. Payroll tax rates have remained the same since 1990. Once they start to change, employers will fear that additional increases will follow and factor this worry into their hiring decisions.
Raise Full Retirement Age
The age when a person becomes eligible to receive full, unreduced Social Security retirement benefits (the full retirement age), has been increasing from age 65 on a schedule set by Congress in 1983. It has reached 66 and will gradually rise to 67 for those born in 1960 and later. Raising the full retirement age further is one option to help close Social Security's funding gap.
One proposal would raise the full retirement age to 68. Starting in 2023, the age would increase by two months each year until it reached 68 in 2028
Raise Full Retirement Age (Pro)
1. Social Security's full retirement age should increase for the simple reason that people are living longer.
2. Many who wish to work longer may have health issues or disabilities that make it impossible to delay retirement. Workers with physically demanding jobs are most likely to face these issues. They should not be penalized by higher age requirements. Instead, they should receive benefits through Social Security's disability insurance program until they reach the new retirement ages. [Show Less]
