We are seeing more and more stories about Social Security’s solvency issue as we approach another projected year, 2034, when the agency’s retirement and disability trust funds are expected to run out of enough money to pay full benefit amounts.
If nothing were done by Congress about Social Security’s finance issue then beneficiaries would see a cut in benefits, but this is not a new story and likely will not happen. For decades people have been identifying that Social Security could run out of enough money to pay full benefit rates, but eventually Congress takes action to extend the life of the trust funds. Typically these are stop-gap measures that only extend the solvency of the trust funds for a limited amount of time. It is time to make some substantial moves when it comes to shoring up the trust funds. USA Today issued a recent article that identified some more permanent solutions to Social Security’s funding issues. One of those solutions is to raise the agency’s wage cap on Social Security taxes. Below is a description from the USA Today article that explores this idea.
Workers don’t necessarily pay Social Security taxes on all of their earnings. Each year, there’s a wage cap that applies to those taxes, and income beyond that point is exempt.
Right now, the wage cap stands at $142,800. Chances are, it will rise in 2022, since it typically increases on a year over year basis.
But a modest increase won’t do the trick in preventing Social Security benefit cuts. And so we could see the wage cap jump substantially rather than rise by about $5,000 like it did from 2020 to 2021.
Another option lawmakers might consider is to lift the wage cap altogether. In that scenario, workers would pay Social Security on all of their income.
There has not been a rationale explanation of why this cap exists in the first place. Most people, who are not earning extremely high incomes, pay Social Security taxes on 100 percent of their earnings, so why shouldn’t everyone pay Social Security taxes on all of their income? This would extend the life of the trust funds more than stop-gap measures, does not change Social Security’s full retirement age and does not increase the percentage of the Social Security tax.
