There are several ways the federal government’s growing debt can be reduced. None of them, however, can make a big enough difference on their own. Economic growth can reduce the relative size of the debt, but not enough to solve the problem soon enough. Cutting government spending can also reduce it, but if the cuts are too severe they will hurt the economy and could cripple essential government services. Likewise, tax increases could hurt the economy if they aren’t done right. This means an honest, non-ideological strategy for solving the debt problem must include a combination of carefully crafted spending cuts and tax increases.
Most of the Republican candidates in this fall’s Congressional elections can be faulted for failing to describe exactly how they’d cut government spending. But on the other side, most of the Democratic candidates are failing to identify sensible tax increases.
Taxes, of course, aren’t usually popular, so any increase has to be perceived as fair. Furthermore, it must generate enough revenue to make a difference without hurting business growth.
Limit Should Be Raised On Social Security Payroll Tax
A change to the limit on the Social Security payroll withholding tax fits this description. The revenue collected from this tax helps to fund the old age, survivors, and disability insurance payments which are administered by the Social Security Administration. Currently, every wage earner has 6.2% of their gross pay deducted from each paycheck for this tax, and their employer pays a matching amount. But the problem is that in 2014 this tax only applies to the first $117,000 of each employee’s earnings. This taxable portion, called the Social Security wage base, is adjusted annually to keep pace with inflation. But an explanation as to why the limit exists in the first place has never been fully explained by Congress.
Requiring high wage earners to pay more in Social Security taxes is fair. They wouldn’t necessarily have to pay 6.2% on all of their earnings because the wage base limit wouldn’t have to be eliminated altogether as long as it’s significantly increased above the current amount. And the percentage of tax paid on earnings in excess of the existing wage base limit could be lower than 6.2%. Also, requiring employers to match this new tax would be more liable to harm the economy, so their tax contribution for earnings in excess of the existing wage base limit could be waived or reduced. The point is that something could be worked out if our politicians were willing to address the issue.
Some might argue that forcing high wage earners to contribute more to Social Security is a form of unfair wealth redistribution, since they are less likely to need the benefits. But the existing rules, were only lower wager earners pay the payroll tax, have helped to create a regressive tax structure that hurts the middle class. And just because somebody makes good money one year doesn’t mean it will happen every year. Besides that, a financially sound Social Security system is in the national interest and a responsibility that should be shared by every American.
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