One of the fixes to Social Security proposed by some federal lawmakers would eliminate the tax break afforded the nation’s top wage earners.
It’s no surprise that Republican House Speaker John Boehner isn’t talking about it, because removing the Social Security cap raises taxes on the most wealthy. But we wonder why the Obama administration doesn’t give the plan a higher profile.
When Congress enacted the Social Security bill in 1935, it included a tax exemption for anyone earning more than $3,000. The tax-exempt limit has grown to $110,100 this year. People earning more than that amount do not pay Social Security taxes on income above the ceiling.
The limit means that someone earning $50,000 per year pays Social Security taxes on 100 percent of their income, while someone earning $220,200 pays only 50 percent.
Eliminating the cap would cover about 90 percent of the shortfall in funding Social Security benefits over the next 75 years. Simply raising the cap would have a lesser effect.
Full solvency could be achieved if the cap were eliminated and no increased benefits paid to the 6 percent of Americans who will earn more than $110,100 this year.
By considering this idea – proposed by congressional representatives from Oregon, Florida and Iowa – Congress could avoid more draconian measures to the safety net for a burgeoning number of senior citizens, such as raising the eligible age or reducing benefits.