President Joe Biden participates in the Democratic National Committee’s Back on Track Auto Rally to celebrate his 100th day in office at the Infinite Energy Center in Duluth, Ga., April 29, 2021.
Evelyn Hockstein | Reuters
Individuals earning more than $ 400,000 would be subject to Medicare 3.8% tax if President Joe Biden’s new tax proposal goes through.
But another change left over from Biden’s campaign – which would apply social security wage taxes to people with higher income thresholds – did not effect the cut.
This is remarkable in that the social security trust funds are running out and, according to some estimates, could be used up in less than 20 years.
Biden’s campaign called for social security wage taxes to be applied to those earning $ 400,000 and more. This year, wages up to $ 142,800 are subject to this tax, which is 6.2% of wages for both employees and employers.
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This would create what is known as a donut hole that exempts those above the wage threshold and then reapplies above $ 400,000.
Over time, however, this gap would close as the wage base increases every year.
Biden called for levies to be increased to fund the proposed benefit increases, including raising the minimum social security benefit to at least 125% of the federal poverty line.
There are several reasons why higher Medicare levies would go into Biden’s tax package while Social Security wouldn’t, according to Shai Akabas, director of economic policy at the Bipartisan Policy Center.
For one thing, Biden’s tax package is likely to be drawn on through a budget vote and Social Security cannot be used in this process as per legal requirements.
“Of course, even proposing an increase in social security wage tax would lead to a bigger debate about the solvency of the program,” Akabas said.
The Medicare changes don’t have the same gravity, he said.
To what extent the solvency of social security was affected by the Covid-19 pandemic is controversial.
The agency’s annual trust report is expected to be published soon. In April last year, the trustees’ analysis showed that the program’s funds would be depleted in 2035. At this point, 79% of the promised benefits would have to be paid.
Other reports suggest that the date could be even earlier due to the pandemic.
However, Nancy Altman, president of Social Security Works, an advocacy group for the expansion of the program, said she didn’t expect that much of a difference in the report from the upcoming trustees.
For example, it could bring forward the date by which funds are expected to run dry from 2035 to 2034.
“It won’t make that big a difference,” Altman said.
That need not necessarily prevent the Democratic leaders in Washington from putting forward a proposal to define the program. This could include a reintroduction of Social Security Act 2100, a House proposal by John Larson, D-Conn., Who had 209 co-sponsors in the last Congress.
“I wouldn’t be surprised if there was a social security plan sometime this summer,” Altman said.