Sunday, July 17, 2011

Are Higher Payroll taxes the Solution to the Social Security Issue?

Some people think that raising payroll taxes will not help the social security crisis. In the position that the US economy is in right now, working toward a solid recovery from a recession, that raising taxes would not be a good solution . Americans would, in that case, not be able to contribute to stimulating the economy to their full potential because they would have less disposable income, therefore  the positive reactions experienced with the multiplier affect would be minimal. The main problem is that social security is unsustainable. The deficits started in 2010 and its trust fund will be depleted by 2036. At that time about 25 % of the social security benefits will be cut. Among some lawmakers raising taxes seem to be on the top of their solutions list. Right now employers and employees each  pay 6.2 % for social security and medicare. If the tax increase were to happen employers and employees would have to split an increase of at least 2.2 %. Raising taxes will further hurt the economy in this situation because employers would then be discouraged from hiring new employees, they would cut labor, increasing America unemployment rates. With my knowledge of the situation I would agree that right now wouldn't be the best time to raise taxes. If in the future our economy has experienced some growth, maybe raising taxes would sound a little bit better. But I  think that right now that government so thoroughly be exploring other options.

1 comment:

  1. A solution that i think is fair is getting rid of the salary cap...It is true that the average middle and lower class worker pay 6.2% of their years earning on social security. However, the cap is at a mere $108,600. Anybody earning more than that does not have to pay on that remaining income. So someone who makes millions pays a tiny fraction if their income into the program while middle and lower class Americans pay a substantial amount

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