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Debate: Should High Earners Pay More Social Security Taxes?

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The Biden administration has long called for changes to the way Social Security payroll taxes are applied to fund benefit increases for Social Security recipients. Under current law, all taxpayers only pay the Social Security tax on their first $142,800 worth of income (the earnings cap will increase to $147,000 in 2022). The latest version of the Social Security 2100 Act would keep that rule in place.

The plan would also reinstate the payroll tax on income in excess of $400,000. In other words, only income between the annual earnings cap and $400,000 would be exempt from the Social Security tax.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the latest proposal to change the Social Security earnings cap.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Bloink

Byrnes

Their Reasons:

Bloink: The highest-income taxpayers in the U.S. take home the largest Social Security checks once they begin claiming benefits in retirement. These same taxpayers also pay Social Security taxes on the smallest portion of their income and are the least likely to rely on Social Security benefits for necessary income during retirement. Wages between the $147,000 earnings cap (in 2022) and $400,000 would continue to be exempt from Social Security tax.

This would serve only to ensure that high-income taxpayers are contributing their fair share to this social program that’s already available to everyone.

Byrnes: Social Security benefits for high-income taxpayers are determined in exactly the same manner as they are for low and middle-income Americans. The proposal may provide much-needed changes to modernize the system as a whole. There’s no rational basis for increasing taxes on higher-earning taxpayers, however. 

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Bloink: We’ve reached a point where we need to increase funding for Social Security, and the highest-income Americans have paid less than their fair share for too long. Countless Americans rely upon Social Security, and with waves of baby boomers retiring every day, countless more will rely on Social Security to shore up their retirement savings — if not provide a primary source of income.

We need to find a way to keep the system solvent without cutting benefits. Biden’s plan ensures that the wealthy pay their fair share without punishing ordinary middle-class Americans.

Byrnes: The Social Security tax isn’t a general revenue tax. It’s directly tied to taxpayers’ eventual receipts from the system and is based on earnings during working years. It makes no sense to require higher-income taxpayers to pay more without a corresponding benefit. There is a limit to the amount of a taxpayer’s benefit check once they reach retirement — and there’s no plan to change that. 

If higher-income taxpayers aren’t getting a higher check during retirement, there’s no reason why a higher amount of wages should be subject to the taxes that fund this program.

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Bloink: Americans who earn more than $400,000 per year are the least likely to be reliant on Social Security as a source of income in retirement. It’s not feasible for this nation to allow millions of retirees to slip into poverty because the rich aren’t willing to pay their fair share. Allowing that to happen would be bad for everyone, including the wealthy who oppose this tax. 

I do think there might be better ways to go about this — considering that the top earners typically also have the resources to manipulate their on-paper income — but this plan is a good start.

Byrnes: Biden’s plan fundamentally changes the Social Security system into a welfare program for lower-earning Americans. That’s just not what the system is set up to do. I agree that we need to do something to shore up Social Security for future generations. However, requiring a certain group of Americans to shoulder the burden is the wrong way to accomplish that goal.

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