Do You Believe The Social Security Tax Should Continue? ✓ Solved

Do You Believe The Social Security Tax Should Continue To Be

Do you believe the Social Security tax should continue to be capped at $118,000 annually or should the level be raised? Explain why you believe this would be a fair or unfair taxation on current workers? Would it be more equitable to reduce the level of benefits to recipients? Why or why not?

The cap limits how much high earners need to pay in Social Security taxes each year, in this case, one hundred eighteen thousand dollars annually. Although this is quite an eye opening number, there is no way that our Social Security Tax should continue to be capped at said amount. Raising the cap would help calm down the breaking of Social Security’s payroll tax base caused by rising wage inequality. Most workers’ taxes would not change, while the increase in high earners’ taxes would depend on whether the cap were raised or eliminated. Raising the tax cap could increase higher earners’ benefits as well, depending on how policymakers treated newly taxed earnings. Changes to the tax rate would affect all covered workers and would not change benefits. Increasing rates alone could close the entire solvency gap; even a modest change.

It would definitely be more equitable to reduce the level of benefits to recipients because more people would receive benefits. Like Shuyi said, increasing the cap by 90% of total earnings would address about 75% of the anticipated shortfalls. Given the rapid growth rate of the elderly population in the United States, we have a growing problem that people receiving social security benefits are beginning to outnumber the amount of people who are still working and paying into the program. This means that as of now, our social security program is on an unsustainable path, so adjustments obviously must be made. Currently, 50% of income in the United States is earned by only 10% of the population which does not seem very equitable to me.

Therefore, I think that the social security cap should be raised for higher earning Americans. Although it is likely that high earning Americans will not need social security benefits by the time they retire, I still think that they should have to pay more into it. Ultimately, the high earners probably would not have made much money if it weren't for the rest of our population who makes up our economy, so they should be required to give back to the public. I do not think it would be fair to reduce the level of benefits for recipients because the current social security benefits are already an established standard of living. Reducing the current benefits would be frustrating to many people, because they would no longer receive everything that social security had promised to them in the first place.

Paper For Above Instructions

The question of whether the Social Security tax should continue to be capped at $118,000 is a contentious one, particularly in light of changing economic conditions and increasing inequalities in income distribution. In considering whether to keep or raise the cap, a number of economic and social implications must be evaluated. This paper argues that the cap should be raised to promote equity and ensure the sustainability of the Social Security program in the face of a rapidly aging population.

The Current Structure of Social Security Taxation

As it stands, the Social Security cap on taxable income limits the amount that high-income earners contribute to the fund. For 2023, the cap was set at $160,200, a figure that may seem substantial but does not adequately reflect the soaring income levels of the wealthiest Americans (Social Security Administration, 2023). With rising wage inequality, the burden of funding the system disproportionately rests on lower and middle-income earners. These workers pay Social Security taxes on nearly all their earnings, while higher earners pay a lower percentage of their income into the system, exacerbating economic disparities (Institute on Taxation and Economic Policy, 2021).

The Need for Reform

Raising the cap is one of the most effective strategies for maintaining the viability of the Social Security program. According to the Social Security Administration, approximately 75% of anticipated shortfalls could be addressed by increasing the cap, thereby fulfilling vital funding needs (Social Security Administration, 2023). With the population of retirees rapidly increasing, the number of workers contributing to Social Security is declining. Consequently, adjustments must be made to stabilize the program for future generations (Munnell & Coffey, 2021).

Impacts on Equity

In terms of equity, raising the Social Security tax cap would be a step toward a more fair and just taxation system. High earners benefit significantly from the economic infrastructure funded by the taxes of all workers; thus, they should contribute proportionately more to sustain programs that serve all Americans (Brown, 2020). Critics argue that raising the cap may deter high earners from contributing further, yet studies have shown that higher earners are often willing to pay more when they understand it results in improved social equity (Gale, 2019).

The Argument Against Reducing Benefits

Another option often debated is the reduction of benefits for current recipients. However, reducing benefits could lead to an increased risk of poverty among the elderly population, undermining the foundational purpose of Social Security, which is to provide a safety net for retirees (Porter, 2021). Many individuals rely solely on Social Security for their retirement income. A reduction in benefits would thus represent a broken promise to these individuals, further contributing to feelings of economic insecurity among this vulnerable population (AARP, 2022).

Conclusion

In conclusion, maintaining the current cap of $118,000 on Social Security taxes is not equitable given the current landscape of income distribution in the United States. Raising the cap would not only enhance the funding of the Social Security program but would also help achieve a fairer distribution of the tax burden. Given the ongoing challenges posed by an aging population and rising income inequality, policymakers must consider raising the cap as a means of ensuring that the Social Security program remains sustainable and equitable. The sacrifice of reducing benefits for recipients should not be on the table when alternative solutions exist.

References

• AARP. (2022). Understanding Social Security Benefits. Retrieved from https://www.aarp.org/social-security
• Brown, J. R. (2020). The Future of Social Security. The Journal of Economic Perspectives, 34(4), 3-30.
• Gale, W. G. (2019). Equity Considerations in Designing Social Security Reform. National Tax Journal, 72(1), 135-170.
• Institute on Taxation and Economic Policy. (2021). Who Pays: A Distributional Analysis of the Tax Systems in All 50 States. Retrieved from https://itep.org/whopays
• Munnell, A. H., & Coffey, J. (2021). Social Security and the Aging Population. Retrieved from https://crr.bc.edu
• Porter, K. (2021). The Enduring Need for Social Security. The American Prospect. Retrieved from https://prospect.org
• Social Security Administration. (2023). Social Security and Medicare Boards of Trustees Report.