With the financial situation of Uncle Sam's retirement benefits program getting more dire, a recurring suggestion — raise the Social Security payroll tax wage base — is getting some traction this year.
Labor Day typically marks the end, at least unofficially, of summer.
After the early September long weekend, most schools are back in session, albeit still in remote/real classroom combos due to the Delta COVID-19 variant. Workers, many also still in hybrid coronavirus cubicle/Zoom formats, tend to focus on their jobs.
Those jobs are critical not just to the employees, but the economy as a whole and to two popular U.S. federal entitlement programs. Yep, we're talking Uncle Sam's health care system for those 65 and older, aka Medicare, and Social Security, much of which goes toward retirement benefits for those age 62 or older.
Every employee is aware when receiving their first paycheck of the amount of money that is directly diverted from their pockets to these benefits via payroll taxes under the Federal Insurance Contributions Act, or FICA.
By paying into the programs, you are entitled to their benefits down the road.
But we regularly hear that Social Security is about to go broke.
Social Security's money troubles: The latest alert arrived on Aug. 31 the 2021 Social Security Trustees Report. It warns that the Old-Age and Survivors Insurance (OASI) Trust Fund, which is the full official name of the program we typically refer to as Social Security, will be able to pay current benefits only until 2033.
After that year, Social Security will be able to pay out just 76 percent of promised benefits.
The depletion of the OASI fund is a year earlier than prior estimates. Part of the reason is the loss of jobs — and associated Social Security payroll tax collections — due to the COVID-19 pandemic.
Longer term, both Medicare and Social Security also are facing financial challenges because of an aging population, which is no longer contributing as much via taxes to the programs while using the services.
Ways to save Social Security: In looking at ways to, borrowing a phrase, save Social Security, three solutions generally are offered.
1. Raise the retirement age. This already has been done, with it going from 65 to 66 for those born from 1943 through 1954. The age to get full Social Security benefits increases gradually for those born from 1955 to 1959. If your birthday is in 1960 or later, you have to wait until you turn 67 to get full retirement benefits.
Continuing to bump up full benefits age would add a few years to the trust fund's life.
2. Raise payroll taxes. Workers, bother those employed by others and the self-employed, pay into the retirement system. Wage earners see 6.2 percent of their income is taken out each paycheck for Social Security, with their bosses matching that amount. Self-employed workers pay the entire worker/boss 12.4 percentage.
Congress could increase this amount, but it would only get the votes of Representatives and Senators who don't want to be reelected.
3. Raise, or eliminate, the cap on taxable wages. There's a maximum amount of earnings that are subject to the Social Security tax. It's adjusted annually; the amount for 2022 should be released by the Social Security Administration this fall.
For 2021, the wage base is $142,800. Folks who make more than that don't have to pay Social Security tax on the amount they get beyond the wage base cap.
Wage base hike gaining support: The argument for a larger taxable wage base is that the tax would come from those who can more afford to pay. But despite the campaign calls of income equity, proposals like this generally faces the same political fate as suggestions to raise the payroll tax percentage. That is, they're doomed.
Or maybe not. Such an idea is gaining some traction. President Joe Biden has supported hiking the wage base cap.
And it looks like a bill to raise the wage base soon will be introduced in Congress.
Or I should say reintroduced. Such legislative actions are common.
This latest proposal is from Rep. John Larson, who is chairman of the House Ways and Means Social Security Subcommittee. In a statement following last week's Social Security trust fund warning, Larson said he plans to introduce a bill he's titled Social Security 2100: A Sacred Trust.
Part of the measure would impose the FICA Social Security 6.2 percent payroll tax on wages exceeding $400,000 a year. That's the level that Biden likes, and Larson says his office is working with the White House on the bill.
That $400,000 earnings level also earns this weekend's By the Numbers honors.
Since it's a work in progress, there aren't any details. However, the similarly named bill Larson introduced in the last Congressional session also included a 2 percent benefit boost for all Social Security beneficiaries. Although that bill didn't pass, Larson did get 208 cosponsors.
Time to act, says lawmaker: As for his upcoming reintroduction of Social Security financing legislation, Larson says Congressional action is vital.
"With the loss of traditional pensions, rising health care costs, and many people unable to save enough for retirement, there is a growing retirement crisis," said Larson in his statement.
"It has been 50 years since Congress has done anything to improve benefits. Social Security is a lifeline for many beneficiaries and a program Americans pay into their entire working lives. The COVID-19 pandemic has underscored just how important this program is to our country, never missing a payment even during economic downturns. We must work to expand benefits now and strengthen the program for today's seniors and generations to come," Larson added.
Since future retirees took the last save Social Security hit by seeing their full benefits age increase, the thinking of the wage base hike contingent is that it's time for wealthier Americans to contribute more.
Let me also note that older Americans also are among the most reliable voting demographic. You can be sure they'll make their voices heard about the possibility of losing any portion of their retirement money.
And you can be just as sure that Larson and others who want to make tax changes to save Social Security will leverage those concerns.
You also might find these items of interest:
- Most people pay more payroll than income taxes
- Some of Joe Biden's Social Security is taxed. Is yours?
- Wyden's tax-the-rich plan would bolster Social Security
- Don't forget to figure self-employment taxes when making estimated payments