Monday, May 12, 2014

"Scrap the Cap": Its Time to Eliminate the Social Security Payroll Tax Cap

Did you know that any earnings above $117,000 per year are not subject to Social Security taxes?  Most people don't realize that there is a cap on FICA taxes and that contributions are not made on income beyond this amount.  Once the $117,000 mark is reached, the wealthy stop paying into the system.  This means that, if you are like the vast majority of Americans who make less per year than $117,000, you pay pay a higher percentage than the 5.6 percent who make more.

Opponents of Social Security, particularly of its disability program, make it seem like cutting benefits for the elderly and/or the disabled is the only way to fix Social Security.  However, there is a far more rational proposal that would improve Social Security's solvency: eliminate or --at the very least-- adjust the cap to bring more revenue into the Social Security Trust Fund.

Obviously, the current Social Security Disability program can be preserved, but this can only happen if we defend it.  

Even though eliminating the Social Security cap is not a new idea, somehow the concept has been forgotten in the journalistic coverage of  the debate.  The ongoing campaign of misrepresentations, distortions and outright lies by Fox News has not helped either.

Just a few weeks ago, a new bill was introduced by Sen. Jeff Merkley (D-Ore.) to increase the annual cost-of-living adjustment for Social Security.  The Senator proposed to pay it by raising the Social Security payroll tax rate of the wealthiest Americans (those making over $250,000).  Senators Bernie Sanders (I-Vt.) and Rep. Peter DeFazio (D-Ore.) have also introduced similar bills.  It is also important to note that President Obama made a similar proposal during his 2008 election campaign.  The Chief Actuary of the SSA has indicated that these proposals would reduced the program's long term short fall by 80 percent.

Economists estimate that only about 1 in 18 workers would pay more if the cap were eliminated completely. Moreover, just 1.4 percent (1 in 71 workers) would pay more if the tax were applied to those who make over $250,000. 

As the Social Security Disability programs comes under attack, the campaign to "Scrap the Cap" by having the wealthiest Americans pay the same as the rest of us --deserves our strong support.