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Social Security Benefits at Risk if Wealthy Don't Pay More: Senate Committee Considers Payroll Tax Adjustments
The Impending Deadline for Social Security Benefits
When it comes to Social Security benefits, a key deadline is looming: Benefits may be reduced in the next decade if no action is taken sooner. The latest projections from the Social Security trustees show the program's combined funds may run out in 2034, at which point 80% of benefits will be payable. The fund used to pay retirement benefits may run out even sooner — in 10 years in 2033 — at which point 77% of those benefits would be payable.
The Payroll Tax Question
This week, the Senate Budget Committee met on Capitol Hill to consider the dilemma facing the program with a focus on a key question: Should payroll taxes be adjusted to make it so the wealthy pay more into the program? In 2023, up to $160,200 in earnings are subject to Social Security payroll taxes. In 1983, when major legislation was enacted to shore up Social Security's trust funds, 90% of covered earnings fell below the taxable maximum. As of 2000, that dropped to 82.5%. Since then, it has remained at about that same level. "We expect it to remain there in the future," says Social Security Administration Chief Actuary Stephen Goss.
The Proposed Legislation to Address the Issue
Senate Budget Committee Chairman Sen. Sheldon Whitehouse, D-R.I., touted his bill, the Medicare and Social Security Fair Share Act, that would require wages above $400,000 to be taxed for Social Security. Other Democrats also support the idea of making higher earners pay a larger share into the program. Rep. Brendan Doyle, D-Pa., has introduced companion legislation to Whitehouse's proposal in the House. Rep. John Larson, D-Conn., and Sen. Richard Blumenthal, D-Conn., on Wednesday reintroduced the Social Security 2100 Act. The bill, with more than 200 Democratic House co-sponsors, also calls for applying Social Security payroll taxes to earnings of more than $400,000.
Divided Opinions on the Tax Solution
Polls have shown raising the Social Security payroll tax cap — sometimes attached to a slogan, "Scrap the Cap" — is popular with the public. Yet, at Wednesday's Senate hearing, some leaders and experts questioned whether that is the right approach. "The truth is that taxes on the rich alone won't save Social Security for our children and grandchildren," said Sen. Chuck Grassley, R-Iowa, ranking member of the Senate Budget Committee. Experts who testified at the Senate hearing were also divided on whether higher taxes are the right strategy to pursue to fix the program. "Any resolution of this funding gap must be perceived to be fair, yet fairness is in the eye of the beholder," said Andrew Biggs, senior fellow at the American Enterprise Institute.
Potential Impact on New Businesses
The ongoing discussion and proposed legislation regarding payroll tax adjustments to address the impending Social Security benefit crisis have potential implications for new businesses. While the primary focus is on ensuring the sustainability of Social Security benefits, the eventual outcome of these tax adjustments can have a cascading effect on the broader economy, including newly established businesses.
If the proposed legislation, such as the Medicare and Social Security Fair Share Act or the Social Security 2100 Act, is enacted and higher earners are required to pay a larger share into the program, it could potentially create challenges for new businesses. Increasing the tax burden on wealthier individuals may deter entrepreneurship and investment, as the cost of doing business and generating profits increases.
On the other hand, if no action is taken to address the Social Security shortfall and benefit reductions occur, it could have an adverse effect on consumer spending. Reduced Social Security benefits can lead to lower disposable income for retirees, potentially impacting their purchasing power and affecting the overall demand for goods and services. This, in turn, could impact the growth and viability of new businesses that rely on consumer spending.
Ultimately, striking a balance between sustaining Social Security benefits and ensuring a favorable environment for new businesses is crucial. It requires careful consideration of various factors, such as the long-term health of the Social Security program, the impact on wealth distribution, and the potential consequences for economic growth and entrepreneurship.
As the debates continue and potential solutions are explored, policy-makers should strive to find a fair and sustainable approach that not only addresses the Social Security funding gap but also supports the growth and success of new businesses, enabling them to contribute positively to the overall economy.
Article First Published at: https://www.cnbc.com/2023/07/14/leaders-debate-whether-raising-taxes-is-answer-to-social-security-woes.html
