Revenues
Increase the Maximum Taxable Earnings for the Social Security Payroll Tax
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
| Billions of dollars | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2015-2019 | 2015-2024 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change in Outlays | * | * | * | 1 | 1 | 1 | 2 | 2 | 3 | 4 | 2 | 15 | |
| Change in Revenues | 13 | 63 | 66 | 69 | 72 | 74 | 77 | 81 | 84 | 87 | 283 | 687 | |
| Net Effect on the Deficit | -13 | -62 | -66 | -69 | -71 | -73 | -76 | -78 | -81 | -84 | -280 | -672 | |
Sources: Staff of the Joint Committee on Taxation; Congressional Budget Office.
Notes: This option would take effect in January 2015. Estimates are relative to CBO’s April 2014 baseline projections. The estimate includes the reduction in individual income tax revenues that would result from a shift of some labor compensation from a taxable to a nontaxable form. The change in revenues would consist of an increase in receipts from Social Security payroll taxes (which would be off-budget), offset in part by a reduction in individual income tax revenues (which would be on-budget). The outlays would be for additional payments of Social Security benefits and would be classified as off-budget.
* = between zero and $500 million.
Social Security—which consists of Old-Age and Survivors Insurance and Disability Insurance—is financed by payroll taxes on employers, employees, and the self-employed. Only earnings up to a maximum, which is $117,000 in 2014, are subject to the tax. (All years referred to in this option are calendar years.) That maximum is indexed so that it usually increases each year at the same rate as average wages in the economy.
This option would increase the taxable share of earnings from jobs covered by Social Security (which was 83 percent in 2011) to 90 percent in 2015 by raising the maximum taxable amount to $241,600. (In later years, the maximum would continue to be indexed as it is now.) Because Social Security benefits are tied to the amount of earnings on which taxes are paid, however, some of the increase in revenues from this option would be offset by additional benefits paid to people with earnings above the maximum taxable amount under current law.