If nothing is done to change the course of events, Americans on Social Security may see their monthly benefits decrease by 25% in the coming years. This is due to the possibility that the Social Security trust fund reserves will become insolvent within the next decade. According to some experts, raising the Social Security payroll tax cap may help solve the problem.
Currently, workers pay 6.2% of their wages, and their employers match that contribution. However, any earnings over the income cap of $160,200 are exempt from the tax (a limit that roughly 6% of wage earners hit).
Raising the income cap to $250,000 (or more) or eliminating it altogether could replenish the trust fund reserves and keep the program running at full capacity beyond the next decade. Doing so would also shift some of the burden of funding Social Security from the middle class to wealthy, high-wage earners.
Currently, those earning over the cap pay an effective Social Security payroll tax rate of 1% or less. However, those earning under the cap get stuck footing a bill that’s six times higher.
With some simple tweaks to the Social Security program, it could be sustainable for the foreseeable future.(Photo: GETTY IMAGES)
Other Possible Solutions
Not all experts and legislators agree that raising the Social Security payroll tax cap is the best solution. Other solutions that have been proposed include:
- Raising the full retirement age to 70 years old (now 66 to 67).
- Raising the payroll tax rate from 12.4% to 15.6%.
- Social Security is being privatized.
- Imposing a Social Security tax on income from business and investments (currently exempt).
Read also: Social Security March 2023: Who Will Receive Twice For Checks?
