People who earn more than $400,000 would be subject to the 3.8% Medicare tax, if President Joe Biden’s new tax proposal goes through.
But another change, one left over from Biden’s campaign — that would apply Social Security payroll taxes to people in higher income thresholds — did not make the cut.
That’s notable because the trust funds that support Social Security are running dry and may be tapped out in less than 20 years, according to some estimates.
Biden’s campaign called for applying Social Security payroll taxes to those making $400,000 and up. This year, wages up to $142,800 are subject to that tax, which is 6.2% of wages for both workers and employers.
That would create a so-called donut hole, exempting those above the wage threshold, and then reapplied starting at $400,000.
However, over time, that gap would close as the wage base is increased each year.
Biden called for the increased levies to help pay for proposed benefit increases, including raising the minimum Social Security benefit to at least 125% of the federal poverty level.
There are several reasons why higher Medicare levies would make it into Biden’s tax package, while the Social Security wouldn’t, according to Shai Akabas, director of economic policy at the Bipartisan Policy Center.
For one, Biden’s tax package is likely to get taken up via budget reconciliation, and Social Security cannot be used in that process, per legislative rules.
“Even just proposing a payroll tax increase for Social Security would draw in naturally a larger debate about the solvency of the program,” Akabas said.
The Medicare changes don’t have the same gravity, he said.
How much the solvency of Social Security has been impacted by the Covid-19 pandemic is open to debate.
The agency’s annual trustees report is expected to be released soon. Last April, the trustees’ analysis pointed to the program’s funds running out in 2035, at which point 79% of promised benefits would be payable.
Other reports have suggested that date could be even sooner due to the pandemic.
However, Nancy Altman, president of Social Security Works, an advocacy group for expanding the program, said she does not expect the difference in the upcoming trustees’ report to be that big.
It could advance the date by when the funds are expected to run dry to 2034 from 2035, for example.
“It’s not going to show that much of a difference,” Altman said.
That may not necessarily stop Democratic leaders in Washington from coming up with a proposal to fix the program. That could include a reintroduction of the Social Security Act, a House proposal put forward by Rep. John Larson, D-Conn., that had 209 co-sponsors in the last Congress.
“I wouldn’t be surprised if sometime this summer there is a Social Security plan,” Altman said.