According to a recent report by the Congressional Budget Office, about 56 million citizens, or roughly one-sixth of the U.S. population, will receive some sort of Social Security benefit this year. More that two-thirds of the beneficiaries are retired workers and their family members. Social Security payments this year, at about $733 billion, currently account for about twenty percent of the federal budget. Nearly all â€“ 97 percent â€“ of Social Security's income results from the 12.4 percent tax levied on salaries up to $106,800. (During 2011, the employee's portion of the payroll tax was cut by two percent, from 6.2 to 4.2 percent, as this IRS notice explains. This was a result of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.)
Clearly, Social Security is an important source of income for many individuals. However, starting in 2010, the program's outlays exceeded the revenue coming in. What's more, at current rates of income and outflows, the Social Security Disability Insurance (DI) trust fund will be exhausted by 2017, while the Old-Age and Survivors Insurance (OASI) trust fund will be exhausted in the year 2040. “Once a trust fund's balance has fallen to zero and current revenues are insufficient to cover the benefits that are specified in law, the corresponding program will be unable to pay full benefits without changes in law,” according to the CBO report.
To minimize the risk of that happening, Senator Bernie Sanders (VT) announced that he will introduce legislation that would apply the current payroll tax to all incomes over $250,000.
However, and somewhat inexplicably, Senator Sanders' bill would not impose the payroll tax on incomes between the current maximum of $106,800 and $250,000, according to this article in The Hill.
Even so, the “Keeping Social Security Promises Act,” would ensure that the Social Security Administration could pay all benefits for at least another 75 years, Sanders said in a statement.
Sanders' proposal is, of course, at odds with President Obama's recent remarks regarding his wish to extend the current payroll tax cut. The thinking is that by allowing middle class families to keep more of their paychecks, they'll spend it, boosting businesses and the overall economy.
What are your thoughts on extending payroll taxes to higher income earners? Is this a reasonable way to ensure the continued solvency of Social Security? Or, is cutting benefits a better solution?