•Press Release Government Health and Social Programs Inequality United States
Proposals to redefine the payroll tax cap are assessed in new analysis.
Washington DC — As Social Security celebrates its 86th anniversary this week it is still standing, but weakened by wage inequality and attempts at privatization. Under the Biden Administration, there is hope of revitalizing the program by modifying the payroll tax cap which is its lifeblood and the object of bitter legislative struggles, past and present.
A new analysis, Exempting the Rich: Who Pays if We Modify the Social Security Tax Cap, released today by the Center for Economic and Policy Research (CEPR), assesses two proposals to modify the payroll tax. One is endorsed by Biden, the other is a revived bill from Sen. Sanders and Rep. DeFazio. Both aim to stem the regressive nature of the payroll tax cap and not only increase Social Security’s long-term viability, but expand benefits and claw back previous cuts.
The report’s author, Research Associate Hayley Brown, looks at the number and characteristics of workers that would be directly affected by changes to the payroll tax cap under the two proposals. Currently, 93.5 percent of earners make under $142,800 annually, the maximum earnings subject to the payroll tax.
The Biden endorsed proposal would exempt earnings above the set maximum and reinstate the payroll tax for earnings in excess of $400,000. The Sanders and DeFazio proposal is similar, but reinstates the payroll tax for earnings in excess of $250,000. Both proposals leave a relatively small group of workers in limbo, earning above the set maximum, but below the amount that would trigger the reinstatement of the payroll tax.
These modest extensions of the payroll tax would only impact from about 1.2 percent to 2.1 percent of the nation’s earners, but would help revitalize one of the nation’s most popular and effective social programs.
“Modifying or eliminating the cap would blunt the impact of wage inequality on the program’s solvency,” says Brown. “To ensure that this lifeline remains robust, legislators must act swiftly to compel the richest Americans to pay their fair share.”
