Social Security: Despite ‘Overwhelming Bipartisan Support,’ Taxing Rich More To Solve Funding Issues Remains Tense Debate

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Coming up with a strategy to address the looming Social Security funding shortfall requires agreement on both sides of the political aisle. That’s a challenge even in a normal political environment, and it’s even more so in today’s increasingly partisan climate. But there is one Social Security fix that nearly everyone agrees on: hiking taxes on the wealthy to bring in more revenue.

A survey of more than 2,500 register voters conducted last year by the University of Maryland’s Program for Public Consultation (PCC) found “overwhelming” bipartisan support for raising the income threshold on wages subject to Social Security payroll taxes. Currently, any wages above $160,200 are not taxed. Some lawmakers recommend raising that figure to $250,000 or higher to bring in more revenue.

The PCC survey found that making all wages over $400,000 subject to the payroll tax was favored by 81% of voters, including 79% of Republicans and 88% of Democrats. The PCC estimates that doing this would eliminate 61% of the Social Security shortfall due to hit in a decade or so, when the program’s Old Age and Survivors Insurance (OASI) Trust Fund runs out of money. After that, the program will be solely reliant on payroll taxes, which cover only about 77% of current benefits, for funding .

President Joe Biden’s 4-point plan to fix Social Security includes a provision to tax any earned income above $400,000, leaving wages between $160,200 and $400,000 untaxed.

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Steven Kull, director at the Program for Public Consultation at the University of Maryland, said raising the payroll tax has gotten “overwhelming bipartisan support,” CNBC reported.

Another proposal with wide bipartisan support is reducing Social Security benefits for high earners. About eight in 10 (81%) voters — including 78% of Republicans and 86% of Democrats — favor reducing benefits for the top 20% of earners. Doing so would eliminate 11% of the shortfall. 

Among the lawmakers trying to push through legislation that would raise Social Security taxes on the wealthy is U.S. Senate Budget Committee Chairman Sheldon Whitehouse (D-R.I.). As CNBC reported, Whitehouse has sponsored a bill, the Medicare and Social Security Fair Share Act, that would require wages above $400,000 to be taxed for Social Security.

“Right now, the cap on Social Security contributions means a tech exec making $1 million effectively stops paying into the program at the end of February, while a schoolteacher making far less contributes their share through every single paycheck all year,” Whitehouse said.

U.S. Rep. Brendan Doyle (D-Pa.) has introduced a companion version of the bill in the House of Representatives.

But not everyone is convinced taxing the wealthy alone will provide a long-term fix to Social Security’s funding problems. As previously reported by GOBankingRates, many high earners might attempt to get around the taxes by putting money into assets not subject to the payroll tax, such as dividend income, capital gains, rental income for non-rental professionals and bond income.

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A separate analysis by the Urban Institute — conducted in 2020, when Biden presented his Social Security proposals as a presidential candidate — also found holes in the plan.

As that analysis pointed out, projected revenue increases “would outstrip” scheduled cost increases under Biden’s plan, improving Social Security’s finances. However, the Urban Institute also projected that the plan “would not raise enough revenue to cover all scheduled benefits. Social Security would still run a deficit every year under his plan, but not as much as it would under current law.”

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