BY MICHAEL P. BOYLE, ESQ./ As you likely know, all Social Security programs — retirement, survivors, disability, and SSI benefits — are funded by a payroll tax (FICA) imposed on all wage earners up to the first $113,700 of wages. Both employees and employers are assessed a rate of 6.2% (an additional 1.45% is assessed to pay for Medicare).
Employees received a tax “holiday” in 2011 and 2012, when Congress voted into law a temporary suspension of part of their contributions to the Social Security fund.
The payroll tax is regressive by nature, in that it imposes a heavier toll on the working poor and middle class than on wealthier workers. If you make $500,000 a year, you make no additional contributions after the $113,700 threshold, whereas someone making $50,000 a year pays FICA taxes on every dollar earned.
Is there an alternative source of funding the Social Security program other than payroll deductions? One idea being floated is imposing a carbon tax and using some of the revenues generated to fully fund Social Security spending. A carbon tax would involve taxing the use of carbon generating fuels such as oil and coal, and using some of the revenues to reduce payroll and income taxes. Some economists feel this would foster significant job growth and encourage the development of cleaner, renewable energy sources.
However, a carbon tax faces a long and difficult path to public acceptance and enactment. The oil and coal lobbies will fight vigorously to prevent a carbon tax from taking effect. Many drivers will balk at a proposal that causes the price of a gallon of gas to rise by $1 a gallon or more, or that leads to greater costs for electric and utility bills.
Think about it, though: Someone making $50,000 would take home an extra $3,100 per year if FICA taxes were eliminated. This would more than offset additional costs generated by carbon taxes.
It’s one way to guarantee Social Security has enough funding to pay benefits in full as we go forward.
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