Would Lifting the Taxable Earnings Cap Make Social Security Solvent?

The annual Social Security Trustees report was quietly released in June, but it looked bleak. The Social Security program (including retirement benefits, Disability and Supplemental Security Income) is facing an $11.4 trillion unfunded liability over the next 75 years. The liability increases to $32 trillion into the indefinite future.

In the report the Trustees suggested several suggestions on solving the problem including lifting the tax cap on earnings. Currently, only wages up to $118,500 are subject to the Social Security portion of the payroll tax. However, while Lifting the tax cap on earnings sounds like a simple fix for Social Security’s funding gap, the changes offered by the Trustees Report would only extend the date of insolvency and would not close the gap.

Additionally, if any of the plans were adopted, they could discourage work by the most productive workers, resulting in less payroll tax revenue than anticipated. Moreover, they would further weaken the link between earnings and benefits. This report recommends that other solutions should be considered first before turning the lifting the tax cap on earnings.

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