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Raising the Social Security Payroll Tax Cap: How Many Workers Would Pay More?

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  • Nicole Woo
  • John Schmitt
  • Janelle Jones

Abstract

On January 1, the maximum amount of annual earnings subject to the Social Security tax – a.k.a. the payroll tax cap – increased to $113,700. Every year, this cap is adjusted to keep up with inflation. Many Americans are not aware that income above the cap is not taxed by Social Security. In other words, workers who make $113,700 or less per year pay a higher Social Security payroll tax rate than those who make more. To help alleviate Social Security’s long-term budget shortfall, raising – or even eliminating – the cap has gotten some attention from policy makers. This paper finds that just 1 in 20 workers -- the wealthiest -- would be affected if the cap were eliminated entirely, and only 1 in 75 would be affected if the cap were applied to earnings over $250,000. In addition, the share of workers who would pay more varies greatly according to gender, race, state and age.

Suggested Citation

  • Nicole Woo & John Schmitt & Janelle Jones, 2013. "Raising the Social Security Payroll Tax Cap: How Many Workers Would Pay More?," CEPR Reports and Issue Briefs 2013-02, Center for Economic and Policy Research (CEPR).
  • Handle: RePEc:epo:papers:2013-02
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    More about this item

    Keywords

    CPI; social security; social security cap; inequality; payroll tax cap;

    JEL classification:

    • H - Public Economics
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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