Saving Social Security: It’s Time to Examine Payroll Tax Parity

Unless you’ve been living under a rock, you’ve read the headlines touting that Social Security is going broke. While that’s not entirely true, projections from the Social Security Administration show its trust fund could exhaust its reserves by 2034. When that happens, Social Security will only be able to pay a portion of its promised benefits.

So, what’s the solution? Many lawmakers in Washington are calling to #ScraptheCap. Like everything, that idea has its pros and cons. An article by Yahoo! Finance examined the payroll tax pitfalls and the findings are quite eye-opening.

Payroll Tax Parity

Our Social Security program is primarily funded through payroll taxes. American workers pay a portion of wages into the system. Regardless of whether you work as a barista at a local coffee shop or you are the CEO of a major corporation, everyone pays in 6.2 percent of their salary, with their employer matching that amount.

The big discrepancy comes when you take into account the payroll tax cap. The way the system is set up, workers only pay tax on the first $147,000 of income. Anything above that is not taxed.

Basically, this means high wage earners are not paying their fair share. In fact, Forbes found that the truly wealthy often pay all of their payroll taxes for the year before brunch on New Year’s Day while hardworking Americans give up a portion of their paycheck week after week, all year long.

Is It Time to Scrap the Cap?

By getting rid of the payroll tax cap, proponents say we could continue to support Social Security benefits far into the future. Although lifting the cap on taxable income would increase how much revenue Social Security receives each year and ensure a more equitable system with everyone paying a percentage of income, it wouldn’t truly be equitable. That’s because many high-income earners are compensated in other forms than just payroll. Stock options, bonuses, and other benefits are not taxed. 

The Bottom Line

The bottom line is there is no clear-cut answer to solving Social Security’s solvency issues. The Seniors Trust believes lifting the wage cap on Social Security taxes is a viable option as it would ensure that the wealthiest wage earners pay a fairer amount. By raising — or completely lifting — the wage cap, more money would pour into Social Security, bolstering its reserves, without putting more financial stress on lower-wage earners.

Raising the payroll wage cap is one of the proposals in the Social Security Expansion Act. This landmark bill also calls for increasing benefits by about $65 each month for most retirees, adopting the Consumer Price Index for the Elderly (CPI-E) to calculate Social Security Cost-of-Living Adjustments (COLAs) instead of the Consumer Price Index for Urban Wage Earners (CPI-W) used currently, because the CPI-E offers a more realistic COLA for retirees, as well as guaranteeing the long-term solvency of the Social Security program.

We cannot let a lack of adequate funding fail our seniors. We must act now to shore up Social Security for today’s retirees and tomorrow’s. We must also act to increase benefits. You can show your support for the Social Security Expansion Act by signing The Seniors Trust petition.