The Social Security System is projected to run into financial problems sometime

Question

The Social Security System is projected to run into financial problems sometime during the mid 21st century. At that time, if no other changes are made, the revenue coming into the system will only be sufficient to payout 75 to 80 percent of the benefits promised to retirees. One proposal to help increase the solvency of the system is to raise the cap on the level of earnings that are taxed under the social security system – currently employers and employees pay payroll taxes only on the first $118,500 a year that an employee earns (the separate tax for Medicare applied to all earnings). What would be the impacts of raising the taxable wage base to, say, $150,000 a year on the employment levels and wage levels of employees currently earning more than $118,500 a year? What would be the impacts on employment and wages of employees earning less than $118,500 a year?

Explanation / Answer

If the taxable wage base raises to, say, $150,000 from $11,500 a year that the employment levels will fall as now income recieved or disposible iincome decreases due to theincrease of tax base and thus wages levels will also fall for employees currently earning more than $118,500 a year.

there would be no impact on employment and wages of employees earning less than $118,500 a year

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