PBS News Hour explores raising the cap on payroll taxes to close Social Security’s funding gap

Business correspondent Paul Solman explores both sides of the case to raise or eliminate the payroll tax cap to close the Social Security funding gap and extend the solvency of the Trust Fund.

Video: YouTube / PBS NewsHour

Currently, the FICA payroll tax that finances Social Security only applies to the first $127,200 of an individual’s earnings (at the time this video was published, it was just $113,700). This means for the approximately 6% of Americans earning over $127,200 per year, only a portion of their total income is taxable.

For the majority of workers, however, 100% of their yearly income is taxed. Each and every dime of their earnings contributes to Social Security.

The Social Security Expansion Act proposes, among other things, raising this taxable maximum cap. Though a very small percentage of Americans are making in excess of $127,200 per year, some of these workers are earning salaries well into the six, seven, and even ten figures.

If just this small portion of Americans were taxed at 100%, it would be enough revenue for the Trust Fund to remain solvent 60 or more years (60 in the case of the Social Security Expansion Act, which proposes taxing income over $250,000, impacting only the highest earners).

Though this would significantly close the gap without tax increases or cuts for the majority of Americans, it still represents a payroll tax increase to wealthy Americans. Franklin Delano Roosevelt introduced the payroll tax cap in the first place to reinforce to these Americans the idea that Social Security was not a welfare program, and thus gain their support.

Still, two-thirds of Americans support raising if not eliminating the cap–and just as many report that they’d happily accept a payroll tax increase themselves if it meant seniors both today and tomorrow would have a secure retirement.