Right here’s how the system works. To assist pay for Social Safety, a tax of 12.4% is break up between staff and employers; a employee is topic to a 6.2% tax assessed on earnings as much as a certain quantity — $160,200 in 2023. Over the previous 4 a long time, Social Safety’s taxable wage base has shrunk as a result of employees are paid extra in non-taxed advantages, resembling medical insurance. As well as, folks incomes excessive wages have acquired larger raises than the underside 95% of earners.
No shock, Social Safety will solely be capable of pay 76% of promised advantages by 2033 if nothing adjustments. The payroll tax must enhance by 3.47 share factors from the present 12.4% to have the ability to assure promised advantages for the following 75 years.
However elevating the payroll tax price on present employees is near-impossible politically. A better answer can be to get rid of the earnings cap whereas leaving advantages as is. The additional income would resolve the monetary hole for 35 years, in response to a report by the Congressional Analysis Service.
About 180 million People contributed a complete of $943 billion to Social Safety in 2021. Ending the cap for the 5% of US employees who earn greater than $160,200 would enhance income by greater than $150 billion.
Consultant John Larson, a Connecticut Democrat, has supplied a complete plan to avoid wasting Social Safety that might elevate the earnings cap however nonetheless present some reduction to employees incomes beneath $450,000.
For these involved that making any adjustments to Social Safety is just too tough, bear in mind, it’s been carried out earlier than. In 1994, a bipartisan group of lawmakers eradicated the revenue cap that used to exist for taxes paid by employees to fund Medicare.
Nearly everybody agrees that Social Safety is important. Almost two-thirds of beneficiaries age 65 and older obtain 50% or extra of their whole revenue from month-to-month Social Safety checks. For one-third of aged beneficiaries, Social Safety gives 90% or extra of their revenue. Research present nearly all of People need extra income for Social Safety. The quickest strategy to get it would simply be to ask at the least these 500-some-odd well-compensated executives to pay extra.
This column doesn’t essentially mirror the opinion of the editorial board or Bloomberg LP and its house owners.
Teresa Ghilarducci is the Schwartz Professor of Economics on the New Faculty for Social Analysis. She’s the co-author of “Rescuing Retirement” and a member of the board of administrators of the Financial Coverage Institute.
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