Eliminate the Payroll Tax Cap? - Peter G Peterson Foundation
The payroll tax cap – the amount of earnings on which workers must make Social Security FICA or SECA (self-employment) contributions – is a metric which many politicians target in their quest for a solution to Social Security’s looming financial woes. One favorite idea (endorsed by President Biden, et al) is to resume FICA & SECA contributions at $400,000 in earnings. Another is to simply remove the payroll tax cap entirely and have everyone pay into Social Security as a percentage of all earnings. There are, of course, arguments both for and against each approach, usually biased , but this evaluation by the Peter G. Peterson Foundation offers a non-partisan discussion of the pros and cons of eliminating the payroll tax cap.
The thing to keep in mind is this: detailed evaluation of both methods in the discussion reveals that neither will 100% solve Social Security’s financial issues. Indeed, several studies have concluded that the approaches described herein would likely add only 5 to 10 years to Social Security’s insolvency date, when what is needed is a long term solution. Nevertheless, this is excellent reading to understand the effect that changing the payroll tax cap might have on Social Security solvency. Click here to read the Peterson Foundation article.
While the article seems to imply that raising taxes on American workers is inevitable, the Association of Mature American Citizens (AMAC) contends it is not. As an example of the leading thoughts on reforming Social Security, AMAC believes Social Security must be preserved and modernized, and that it can be achieved without tax increases. AMAC’s proposed approach includes slight modifications to cost of living adjustments and payments to high income beneficiaries plus gradually increasing the full (but not early) retirement age. AMAC Action, AMAC’s advocacy arm, supports raising the thresholds at which benefits are taxed and then indexing for inflation, and calls for eliminating the reduction in people’s benefits for those choosing to work before full retirement age. AMAC is resolute in its mission that Social Security be preserved for current and successive generations and has gotten the attention of lawmakers in D.C., meeting with many congressional offices and staff over the past decade.