New legislation would phase out the wage cap on the payroll taxes that fund Social Security over the next seven years and encourage contributions "above the cap in exchange for additional benefits."
Phasing out the cap on wages subject to Social Security contributions would ensure "that all benefits can be paid in full and on time for the foreseeable future," according to Sen. Mazie K. Hirono and Rep. Jill Tokuda, the Hawaii Democrats co-sponsoring the Protecting and Preserving Social Security Act, introduced on Aug. 2.
The Hirono-Tokuda bill would also use the index formerly known as the Consumer Price Index for the Elderly (CPI-E) to calculate the relevant cost-of-living adjustment (COLA), rather than the more generic Consumer Price Index for Urban Wage Earners (CPI-W).
Sen. Bob Casey, D-Pa., chairman of the Senate Special Committee on Aging, introduced similar legislation in March, the Boosting Benefits and COLAs for Seniors Act, that would direct the Social Security Administration to adjust benefits based on CPI-E.
Phase-In Is 'Clever'
In 2024, the Social Security tax known as FICA "is assessed against all wages up to a maximum of $168,600," Nancy Altman, president of Social Security Works, told ThinkAdvisor Monday in an email.
"This proposal calls for the assessment against all wages (though no unearned income, as some other Democratic proposals do), phased in over 7 years. Since FICA is 12.4% of the wages, the phase in is clever," Altman said. "One-seventh of the 12.4% or 1.8% of all wages in year one, up to 12.4% of all income in year 7. Those contributing more would receive higher benefits."
