Peter Tucci, Staff Reporter
Payroll taxes will rise as part of any comprehensive Social Security reform bill, Kenneth Apfel, a University of Maryland professor and former Commissioner of Social Security, told Congress last Wednesday.
A report released last month by the Social Security Trustees predicts that the program will begin running an annual deficit in 2016, one year earlier than the trustees had previously projected. The report also states that Social Security will become insolvent in 2037, significantly sooner than the trustees’ initial estimate of 2041. Congress is widely expected to take up Social Security reform sometime next year.
Apfel was one of six panelists at a hearing convened by the Senate Special Committee on Aging on June 17.
“We’re going to clearly need tax increases,” he said.
While the panelists agreed that the recession and the mass retirement of baby boomers threaten the viability of Social Security, they disagreed on appropriate reform measures.
John Irons, the research and policy director at the liberal Economic Policy Institute, asked Congress to increase the maximum taxable wage of $106,800 and possibly eliminate the tax cap completely.
Irons’ suggestion would result in higher payroll taxes for upper-income Americans. He said that his recommendations would make the system “more fair” for middle and lower-middle class workers without exacting an undue burden on more affluent individuals.
“The tax would have, at worst, a modest impact on the standard of living of upper-income taxpayers,” Irons said.
Andrew Biggs, resident scholar at the conservative American Enterprise Institute, disagreed. He said that increasing the maximum taxable wage would raise effective marginal tax rates and discourage work.
“Tax increases are damaging economically,” Biggs said. “For that reason, I generally oppose tax increases.”
Instead of raising taxes, Biggs suggested that Congress should reform Social Security in a way that encourages workers to retire later and pay more into the system.
So far, Congress and the Obama administration have been tight-lipped about their plans to reform Social Security. During the presidential campaign, the president said that he favored increasing the maximum taxable wage but would consider exempting earnings between the current maximum taxable wage and $250,000.
Democratic Sen. Herb Kohl, the Chairman of the Senate Special Committee on Aging, which will play a key role in drafting next year’s Social Security reform bill, also expressed support for raising the maximum taxable wage while making an exemption for workers earning less than $250,000 per year.
“Social Security is a problem,” said Republican Sen. Mel Martinez, the ranking minority member on the Senate Special Committee on Aging. “And there are no easy, simple or painless solutions.”
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