Two U.S. senators — one a progressive Democrat from Massachusetts and the other a conservative from Ohio — are working on legislation that they say would “extend the solvency of Social Security for another generation.”
U.S. Sens. Elizabeth Warren, D-Mass., and Bernie Moreno, R-Ohio, are setting their sights on Social Security’s payroll tax cap.
Social Security trustees reported this month that if no changes are made to the program, its retirement trust fund could dry up by 2032 — resulting in a 22% reduction in payments for those receiving retirement benefits. The trust fund has been used to cover the shortfall between the cost of payments and program revenues, which come mostly from payroll taxes.
The federal government now caps earnings subject to payroll taxes at $184,500. Warren and Moreno said those making up to that amount — the vast majority of American workers — must pay Social Security taxes on all of their earnings, while higher earners pay the taxes on only a portion of their income.
“Why should a middle-class nurse pay a larger share of her paycheck than a wealthy corporate lawyer? This is doubly unfair in an economy in which top earners’ wages, over time, have pulled far ahead of those of the average worker,” Warren and Moreno wrote in an op-ed published Tuesday in The New York Times.
Warren and Moreno cited an estimate projecting that eliminating the payroll tax cap could generate about $3 trillion for the program over the next 10 years.
A survey released last year by the National Academy of Social Insurance, AARP, the National Institute for Social Security and the U.S. Chamber of Commerce showed that 68% of respondents were in favor of eliminating the payroll tax cap.
Within those numbers, the survey found that 60% percent of respondents with a household income of $200,000 or more were in favor of eliminating the cap.
“We have long supported adjusting the payroll wage cap so that the wealthy contribute their fair share to Social Security,” Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare, said in a statement.
Richtman said eliminating the cap to generate more revenue for Social Security is a “far more equitable way to restore the program to long-term solvency than cutting benefits.”
Andrew G. Biggs, a senior fellow with the conservative American Enterprise Institute, said in an email that eliminating the cap would be “one of the biggest tax increases in U.S. history and concentrated on a small number of workers.”
Doing so, Biggs said, would “effectively increase the top marginal tax rate by 12 percentage points, a massive increase that would give the U.S. higher top tax rates than nearly all European countries.
“Added to existing federal income and payroll taxes and state income taxes, high earners in places like New York and California would be paying over 60 cents on each additional dollar to the government. Those workers will either work less or try to avoid the tax,” he added.
“Moreno and Warren call their idea a ‘no-brainer.’ I agree, though not in the way they might appreciate,” Biggs said.