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Debating the Suggestion to Eliminate the Taxable Maximum
It’s an on-again, off-again topic when it comes to dealing with Social Security’s financial woes. Popular thought often leans toward applying the payroll tax to all wages, not just the portion below the annual maximum ($184,500 in 2026). Rational thought, though, counters this popular notion by explaining the nuances of the benefit calculation process and noting that much of the financial improvement would be lost due to higher ultimate benefits for high earners. Some suggestions are to remove the taxable maximum and to eliminate the additional tax paid from the benefit calculation, thus instilling welfare concepts into the equation.
It’s a highly charged, volatile part of the current Social Security debate, as noted SSA veteran Tom Margenau suggests in a tucson.com post. Margenau turns the taxable maximum coin over and examines the other side, illustrating how total wage taxation could lead to exorbitant benefit levels for very high earners. This, of course, would further exacerbate the income inequality problem already existing in today’s economy. See…it’s not a simple thing, as most of the popular suggestions to “fix” Social Security are. Margenau’s post illustrates a few more two-sided proposals.
AMAC’s Social Security Guarantee on the issue
The AMAC Social Security Guarantee addresses this item as one of its proposals, noting that the proportion of the U.S. workforce payroll not subject to FICA tax has grown from the 10% projected in 1983 to an estimated 17.5%. In other words, about 7.5% of the total workforce payroll assumed to be subject to FICA taxation is escaping this levy. This loss of anticipated tax revenue is a primary reason for the trust fund full depletion projections moving from 2056 as projected in 1983 to 2032 as currently projected.
Although the taxable maximum does increase annually based on the NAWI, the proportion of wages above the maximum has grown disproportionately, with real wage growth for the top 6% of earners growing more than three times that of the lower 94%. This has led to many calls for either eliminating the taxable maximum or implementing various levels of increase. In fact, the Social Security Office of the Chief Actuary has evaluated and scored 29 separate proposals calling for changes to the taxable maximum provision.
The AMAC SSG recommendation is to implement a series of increases to the taxable maximum earnings amount to advance it to the level targeted in the 1983 amendments (90%). For example, as recommended in a proposal from the Bipartisan Policy Center, adding 2% to the annual OASDI taxable maximum NAWI adjustment would, over a 38-year period, raise the taxable maximum ($176,100 in 2025) to $740,851 by 2064, eliminating an estimated 22% of the long-range actuarial balance shortfall.
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