Recently the Senate Budget Committee held a hearing to focus on a key question: Should payroll taxes be adjusted to require high earners to pay more into the program? A critical deadline is looming for Social Security, and benefits may be reduced in the next decade if no action is taken to address program shortfalls. The Social Security Trust Funds are estimated to become insolvent in the federal government’s fiscal year 2033 which begins October 1, 2032.
According to testimony from the Social Security Administration’s Chief Actuary Stephen Goss, Social Security is running short of finances, 20 years sooner than expected when a comprehensive package of reforms last passed in 1983. The primary reason? A huge increase in the earnings over Social Security’s taxable maximum wage base which is currently capped at $160,200.
In 1983, only 6 percent of earners had wages higher than the taxable maximum. But that percentage has almost tripled today. More than 17 percent of wage earners (those with the highest wages) escape Social Security payroll taxes on the portion of their earnings that exceed $160,200.
According to a brief by the Congressional Research Service https://crsreports.congress.gov/product/pdf/RL/RL32896 raising or even removing the taxable maximum earnings limit could strengthen Social Security’s long term solvency. The full impact would depend on whether the wages above the current maximum would be counted toward benefits. If those wages are counted, that would lead to higher monthly social security checks for individuals who earned more during their careers. The higher benefit payments would lead to greater program outlays in the future, but the expenditures would be “more than offset by greater tax revenues.”
Protecting Social Security For All: Making The Wealthy Pay Their Fair Share, Testimony by Stephen C. Goss, Chief Actuary, Social Security Administration, U.S. Senate Committee on the Budget, July 12, 2023.
Social Security: Raising or Eliminating the Taxable Earnings Base, Congressional Research Service, December 22, 2021.