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Changing the Payroll Tax Rate to Address Social Security’s Shortfall - The Motley Fool
How Much of an Increase would it take?
As various organizations weigh in with specific suggestions to fix Social Security’s looming financial train wreck, we often see proposals to raise the payroll tax rate to bolster the revenue side of the equation. This may seem like a simple solution, but after careful examination, it becomes clear that it’s really not that simple. Beyond the pain inflicted directly on those paying the tax, changes to payroll tax rates–6.2% for employers and 6.2% for employees–could have a chilling effect on payroll growth, as the additional tax burden might inhibit wage growth and, in turn, overall workforce tax contributions. A higher FICA rate would also disproportionately impact lower-wage earners, since the increased burden would represent a larger share of their overall earnings. Further, additional payroll costs would likely impact hiring, especially for small businesses. Overall, this option is considered by many to be the least politically viable.
Objections aside, many wonder exactly what size increase would be necessary to make the payroll tax increase financially effective. The Motley Fool’s Kailey Hagen, CFP, in a post on their website, suggests that a rate north of 16% would be needed, and she explains this conclusion further in this post.
This posting is presented for informational purposes only and does not represent legal or financial guidance. Any opinions or interpretations presented are either those of the original author or, in the case of articles authored by the AMAC Foundation, are the opinions of AMAC Foundation staff, originally trained and accredited by the National Social Security Association (NSSA) and certified via the AMAC Foundation. Any links included in the article are valid on the posted date; socialsecurityreport.org cannot guarantee the duration of the links’ validity. NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (https://amacfoundation.org/services/) or email us at ssadvisor@amacfoundation.org. Because we are a non-profit organization, there is no charge for these services.