Democratic presidential nominee Joe Biden has proposed asking wealthy Americans to pay more in payroll taxes to help fund Social Security – but down the line more Americans might be subject to those increased rates, a new report shows.
Under Biden’s plan, income above $400,000 would be subject to the 12.4 percent Social Security tax, which would be split evenly between employees and employers. Currently, there is a wage cap of $137,700. Wages between those two ranges would not be taxed.
However, as noted in an analysis conducted by the Urban Institute, that gap would be closed in about three decades because the plan does not index the second-contribution threshold to inflation.
The first income cap is indexed and rises annually alongside wages, so researchers note that in roughly 30 years the two thresholds would meet rendering the cap void.
“All covered earnings would be taxed once wage growth increases the limit for the first contribution base to $400,000,” researchers explained.
The result of the proposed policy would be a 7% boost to program revenue in 2021, according to the study, but compared with current law, it would collect 12% more revenue by 2040 and 16% more in 2065.
However, because Biden has proposed expanding benefits, researchers expect the program would still run an annual deficit although a smaller one when compared to the continuation of current policy. The program, under his plan, would not be able to pay scheduled benefits in full in 2040.
That means future tax increases, or benefit cuts, would still be necessary.
The annual trustees’ report did not take the effects of coronavirus into account when it estimated that the program’s reserves would be depleted by 2035. At that time, levies were expected to be sufficient to cover 79% of scheduled benefits.
An analysis conducted by researchers at the Penn Wharton Budget Model showed that Social Security is at risk of running out of funds as many as four years earlier than anticipated depending on the shape of the U.S. economic recovery.