If you had to choose between raising the cap on the payroll tax and raising the tax itself, which?

Question

would you choose and why?

Answer 1

*** Meaning once you gross $93,000 a year, you no longer pay that tax. ***

I know what you meant but you misstated that. People making more than 93k still pay the maximum amount off the tax, but the tax does not incrementally increase beyond that point. So Bill Gates pays the same amount of FICA as, say, your run-of-the-mill doctor or middle manager. But you are wrong, removing that cap for the relatively few people who make more than 93k would certainly NOT come anywhere close to raising another 250 billion dollars of tax revenue ( = the deficit).

But that's beside the point, and here's the politics of the thing. If that cap seems unfair, realize that there is ALSO a cap on social security benefits. For any individual, both the inflow and the outflow have a limit. So Bill gates will RECEIVE no more social security benefits than that middle manager.

So if you remove the cap on the tax, do you also remove the cap on the benefit? Do you let rich people pay huge amounts of tax but then retire and receive huge amounts of benefit? If so, then that will do nothing to improve solvency of social security -- you're just changing the scale of the program at both ends.

So you say keep the limit on benefits? So that rich people pay in huge amounts of tax, but receive a small share of benefits? Ahh but here's you problem. In that case politicians can no longer claim that people get a return of X% on social security. Because high income people will definitely lose a LOT of money to the system. People would realize then that social security is nothing but a transfer tax, and that if they become financially successful SS will be nothing but a money-losing black hole.

And that's when political support for social security will be gravely threatened, and people might demand a private system instead. And THAT would cause a disaster with respect to funding the system for current beneficiaries.

Since I would prefer a privatized social security system, I say YES, let's remove the income limit; let's open peoples' eyes.

Answer 2

That all depends on which tax you are refering to. FICA, FUTA, SUTA? With the exception of the HI portion of FICA they all have different caps. And SUTA varies from state to state. If given the choice I would remove the cap from at least the OASDI portion of the FICA tax. Currently it is at $93,000. Meaning once you gross $93,000 a year, you no longer pay that tax. If you figure in how many Americans make more than that a year, such as celebrities, professional sports players, politicians, CEOs etc. it would amount to BILLIONS , yes BILLIONS more a year to the economy. Tell me that wouldn't eliminate the deficit!