Social Security's Solvency Can Be Improved Without Cutting Benefits
By Jessie Gibbons, Legislative Assistant
Since its inception in 1937, Social Security has been financed by a dedicated payroll tax on all earnings that fall below the taxable maximum, or the "tax max." Today, the cap sits at $113,700 and workers earning more than that pay no Social Security taxes on the rest of their income.
The tax max was set about thirty years ago, but it has not kept pace with changing income patterns over the past few decades. Many senior advocates – including The Senior Citizens League (TSCL) – feel that it should be realigned to improve the solvency of the Trust Fund responsibly, without cutting benefits.
Since the early 1980s, the tax max has increased steadily with the average wage. Today, only 6 percent of workers earn more than the tax max, but earnings for the top 1 percent – and in particular for the top 0.1 percent – have grown much faster than incomes for the rest of workers. For that reason, the percentage of earnings subject to the payroll tax has fallen from 90 percent in 1983 to 86 percent today.
TSCL feels that gradually increasing the tax max to once again cover a greater percentage of earnings is one of the most responsible ways lawmakers could address the program's solvency issues. We believe that this option should be considered before benefit cuts like the "chained" COLA are adopted, and our members agree strongly. In our most recent annual senior survey, seventy-eight percent of respondents said it would be fair to require workers to pay payroll taxes on all of their income, rather than letting high earners pay nothing on income over $113,700.
Since the start of the 113th Congress in January, TSCL has announced its enthusiastic support for two bills that would increase the tax max. In February, Rep. Ted Deutch (FL-21) and Sen. Mark Begich (AK) introduced the Protecting and Preserving Social Security Act (H.R. 649, S. 308), a bill that would gradually phase out the cap, requiring high earners to pay payroll taxes on all of their earnings. According to Sen. Begich's office, the bill would extend the program's solvency by seventy-five years without cutting any benefits.
In addition, Rep. Peter DeFazio (OR-4) and Sen. Bernie Sanders (VT) introduced the No Loopholes in Social Security Taxes Act (H.R. 1029, S. 500), a bill that would apply payroll taxes to income up to the tax max, and to all income in excess of $250,000. Rep. DeFazio says the bill would only affect the wealthiest 1.3 percent of Americans, but it would keep Social Security strong for at least another fifty years. Upon introducing the bill, he said, "We shouldn't cut benefits or try to balance the budget on the backs of seniors ... We can just close a tax loophole that allows millionaires and billionaires to pay a lower percentage of their income into Social Security than everyone else."
TSCL is very supportive of both bills, since they would realign the tax max and extend the solvency of the Trust Fund responsibly, without cutting benefits. To learn more about these or other bills affecting Social Security, visit our website at Track Bills.