Will You Soon Pay Social Security Tax on 100% of Income?

It’s unfortunate that most politicians and economists don’t explain our $34 trillion dollars of debt in a simpler fashion, but I’ll offer some insight on how the basic math works.  If you really understand the math, it’s not hard to deduce what outcomes may be here in the future.  With the possibility of another four years of Bidenomics, you might think you’ll pay social security tax in perpetuity.  Here’s why.

If you think about the Government as a business (albeit not an efficient one), we have three broad ways it brings in income:

1. Personal Income Tax (47% of U.S. revenue)
2. Payroll Tax (Social Security and Medicare) (37% of U.S. revenue)
3. Corporate Income Tax (9.5% of U.S. revenue)

On the opposite side of the ledger, we run an annual fiscal deficit of roughly $1.8 trillion dollars. Here are the top four expenses:

1. Medicare/Medicaid (24% of spending)
2. Social Security (22% of spending)
3. Defense (13% of spending)
4. Net Interest on The Debt (11% of spending)

So, how do you clean up this mess?  How do you potentially ‘balance’ the budget?  The simplicity of this is that you either decrease expenses, increase revenue, or do some combination of both.

In its latest stance, The Social Security Board of Trustees now estimates that based upon current law, in 2041, the Social Security Trust Funds will be depleted.  If you don’t understand how Social Security (FICA on your paystub) Tax works today, here’s a basic explainer:

• As an employee, you pay 6.2% of every paycheck into Social Security until you hit the FICA wage base cap which is $168,600 in 2024.
• In addition, your employer ALSO pays the same 6.2% with the same cap.
• If you are self-employed, you get the full enjoyment of paying both halves of the Social Security tax (note: you do get a small tax deduction come tax filing time)

The current administration came out in 2023 saying that they would like to see payroll taxes become a ‘perpetuity’ tax once you hit the $400,000 mark of income.  This means that both YOU and YOUR EMPLOYER would be responsible for paying an additional 6.2% on every dollar of income you earn above that level.  This is a slightly backhanded way of increasing corporate tax while increasing a personal tax on Americans working hard to earn money.

This “donut hole”—the amount you make between $168,600 and $400,000—is not a huge gap. It therefore doesn’t take a huge leap of logic for the government under Bidenomics to just make Social Security a perpetuity tax.

With almost half of American families paying no federal tax whatsoever, it’s no surprise that the only solution that keeps coming up is to tax the wealthy more.  Where else will you get it from if 50% of the people pay no federal tax?  You get it from those who are paying and making more money.

Corporations only make up 9.5% of the revenue we generate.  Increasing their tax could make a dent, but it’s not even close to the payroll tax we collect as a country.  So, buyer beware, that a perpetuity tax on Social Security will be one of the top targets you might see over the next four years, that will affect both you and your employers.

Tick tock. Tick tock. The $34 trillion in debt keeps on ticking and just might cost some of you 6.2% of every dollar you make.