A Social Security adjustment worth considering

[Joe Nation]

One thing I never hear in regard to making adjustments to the Social Security system to increase solvency, is increasing the Social Security contribution limit on earnings. It does increase annually already but only marginally. Currently, any amount of earnings above $176,100 isn't subject to Social Security taxes. Why not increase that to 500K or 1M or 10M? Here is some further explanation of just how the system works.

The Social Security contribution limit for 2025 is $176,100, which is the maximum amount of earnings subject to Social Security tax. This limit increases each year to keep pace with wage increases.
How does this limit work?
Only earnings up to the maximum limit are subject to Social Security tax.
The Social Security tax rate is 12.4% of earnings.
Employees have 6.2% of earnings deducted from their paychecks, and their employers pay the remaining 6.2%.
Self-employed individuals generally pay 12.4% of their net self-employment income.

Both high earning individuals and employers would have to pay 6.2 percent on the additional earnings spreading the cost across both entities. I have no estimate of how much this might increase the coffers of the Social Security system but my guess is that it would increase the solvency of the system substantially. You might sweeten the deal by reducing the self-employed amount to something south of 12.4 percent. Anyway, has anyone ever heard this solution proposed by anyone in Congress?

[PoindexterOglethorpe]

1. I have been reading for literally decades

that the way to fix Social Security is to raise, or totally eliminate the earnings cap on SS taxes.

This has been suggested continually as long as I can remember, which goes back more than 60 years.

[Bengus81]

13. Because its a very simple fix that would keep SS solvent for 100 years or more

That's why Republicans hate it.

[IbogaProject]

21. Unearned income and capital gains above some level should be part of it

These billionaires get paid in stock for their "work" that should get hit by medicare and FICA deductions. Obviously gains from investments up to some middle class level should always be exempt, especially for rettirees.

[Rebl2]

24. I don't

think even some democratic politicians are on board with this because they never try to increase the earnings cap. At least I never hear them talk much about it, let alone do anything about it.

[choie]

2. It's an obvious solution

That none of our elected officials, including most Dems don’t want to propose.

[spooky3]

14. It's controversial because benefits are also capped,

Much more so for higher earners than for lower earners and others.

Social Security was designed to provide a safety net of basic income to be combined with other sources of income at retirement. If all earnings are taxed and the benefits cap is changed, that’s no longer what the program would be. If the earnings cap is removed and benefits are still capped, it becomes a welfare program, which many people, including many Democratic voters, could object to.

[Tree Lady]

15. Because republicans would scream that we are

raising taxes when its only higher middle class and up that would pay more taxes. Elected officials on both sides aren't going to risk pissing off their donors who would all pay a lot more in taxes.

[Ms. Toad]

3. It is suggested on a very regular basis.

[MineralMan]

4. The Self-Employment tax comes as a major surprise to most people

who work for themselves, either full or part-time. We don't have an employer to pay half of our SS taxes, so we have to pay it all. That's OK with me, but it does come as a shock when you first switch to self-employment.

[FHRRK]

10. Been there

With that, IMO, there should be a hole. Maybe a gap from the 171k to 500k and then anything after being taxed.

And yes, as a person living in a high income State, I am tired of covering the other States.

[Bengus81]

11. I was self employed for 42 of my 47 working years. No one I ever talked to (that worked for someone) had a CLUE

that self employed people pay 6.2% X 2. They were shocked to say the least--after they had already said to me...must be nice to be self employed,you get a day off any time you want.

[MineralMan]

12. Yeah, I stopped working for others in 1974.

I didn't stop working until 2021. So, a lot of years of self-employment. Since I did my own taxes, I saw that percentage taken for the self-employment tax. I figured out very early that I was paying both halves. It didn't seem outrageous to me, though.

[Bengus81]

16. Similar...self employed in 1975 and retired in 2017. Knee's were done and so was I......

[bottomofthehill]

5. I like the thought with slight tweaks.

6.2% both sides up to $150,000 and then 3.1 % each side up to $500,000 then 1% each side after.

[Grins]

6. Just pull the damn cap!!!

Been saying it for 20 years. Instant solvency.

[Bengus81]

7. That 6.2% hasn't been raised in what,close to 50 years?

A small increase in that part of the tax and then remove that cap and SS is good to go for the next 100 years......

[House of Roberts]

8. Get rid of the exclusion on passive investment too.

If you’re an investor, you’re self employed. No income should be exempt.

[Silent Type]

9. Something needs to be done. Obama tried, but was crucified. There is no way the cap will be removed, though it

might be increased.

If we remove that Cap, that would be a 12.4 percentage point increase in taxes for the 7% that make over $180,000. That cool, doesn't impact me.

But it does impact everyone of us because if we could get a 12.4% increase out of higher income people, we need it for healthcare, education, childcare, climate, infrastructure, deficit and debt reduction, and a bunch more.

The reality is, that it just won't happen. So as far as SS, they'll increase the cap each year, maybe institute some minor surcharge for FICA tax for the better off, maybe increase full retirement age a bit (keeping the 62 years for eligibility). And, they'll continue to pay better off people less per dollar earned than those at the lower end of chain (which has pretty much been the case since day one).

[RandomNumbers]

17. Or raise the minimum wage

So more money comes in from lower income workers. (who I believe pay FICA no matter how low their pay rate, unless they are employed illegally)

Or reduce the hiring of H-1Bs that depress wages in the IT industry.

But yeah, raising the SS cap is ONE way. (and I support it, to a point. The cap exists for a reason.)

[dgauss]

18. Interesting tool to estimate fixes to Social Security.

https://www.crfb.org/socialsecurityreformer/

No idea how accurate this is...

There are several adjustments you can make and see what percentage of the 75 year shortfall that would close.

On the revenue tab, I selected "Subject All Wages to Payroll Tax" and that alone would close 60% of the shortfall (according to this calculator).

On Edit: There's definitely some harsh criticism of crfb. Here are a few links after a quick search about their reliability:

https://en.wikipedia.org/wiki/Committee_for_a_Responsible_Federal_Budget
https://mediabiasfactcheck.com/committee-for-a-responsible-federal-budget/
https://budget.house.gov/press-release/fact-check-alert-debunking-crfbs-analysis-of-trump-and-biden-impacts-on-the-national-debt

This is from the Criticism section in the Wikipedia page:

Michael Hiltzik, writing in the Los Angeles Times, called the CRFB "a billionaire's front group that likes to portray itself as a neutral budget watchdog" due to the group's ties to billionaire Peter G. Peterson and The Peter G. Peterson Foundation.[33] Paul Blumenthal and Christina Wilkie, writing in HuffPost, made a similar criticism of the group's connection to Peterson.[34]

Economist Paul Krugman, writing in The New York Times, criticized "deficit scolds" like the CFRB for having bad policy suggestions and being hypocritical, as well as having hidden intentions to "shred the social safety net". Krugman argued that "the deficit scolds, while posing as the nation's noble fiscal defenders, have in practice shown themselves both hypocritical and incoherent. They don't deserve to have a central role in policy discussion; they really don't even deserve a seat at the table."[35]

It would be nice to have a tool like this that was reliable, not sure if that's the case though.

[drray23]

19. One thing you never hear ?

You must not be paying attention. This has been proposed for decades as a way to easily fix the social security fund. Obviously, it's fought by the Republicans.

[C_U_L8R]

20. The cap always seemed stupid to me

C'mon, millionaires and billionaires would hardly notice and it would mean the world to retirees and the ongoing viability of Social Security. It's such an easy, obvious and fair answer, no wonder politicians on all sides veer clear of it. We all deserve better than this.

[Captain Stern]

22. This has been talked about lots.

I think it's a good idea, but it doesn't totally 'fix' social security's problem. But from what I've read, it's a good start.

[Wounded Bear]

23. Do that and double the minimum wage and you're on to something...

It's hardly a new idea. Raise it too high and then rich folk get more back than they deserve/need, but it should probably be in the $250-500k region.

Raising the percentage withheld is a bad idea and unnecessary.