Scrapping the Social Security Payroll Tax Cap: Who Would Pay More?
There is currently $2.7 trillion in the Social Security Trust Fund, held in Treasury bonds. Since the program is currently taking in more revenues (taxes on payroll and benefits as well as interest on the bonds) than it is paying out, the Trust Fund will continue to grow to about $2.9 trillion. The Trust Fund was set up to help pre-fund the retirement of the baby boomer generation. In about 2033, these funds will be drawn down, so after that point, if no changes are made, beneficiaries would receive about 75 percent of scheduled benefits. This gap between what the program would be able to pay and scheduled benefits is equivalent to about one percent of Gross Domestic Product over the next 75 years. To help avoid a reduction in payments and alleviate the program’s budget shortfall, one option is raising – or even abolishing – the cap on the maximum amount of earnings that are subject to the Social Security payroll tax. In 2014, that cap is set at $117,000 per year (it is adjusted annually to keep up with inflation). This issue brief analyzes Census Bureau data from the most recently available American Community Survey to ascertain how many workers would be affected if the Social Security payroll tax cap were raised or phased out.
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