The Wage Base

Background

Workers and employers each pay 6.2 percent in taxes on wages up to the maximum amount for Social Security ($127,200 in 2017). This maximum taxable wage increases annually based on wage growth, provided a cost-of-living adjustment is made. In 1977, Congress set the maximum taxable wage with the intent of covering about 90 percent of covered earnings. Today only about 85 percent of covered wages are subject to the payroll tax. This decline has occurred because wages above the taxable maximum have increased more rapidly than wages in general.

Some policymakers have suggested increasing the amount of wages that is subject to the payroll tax to help move the Social Security system toward long-term solvency. While completely removing the wage cap has also been discussed as a possible option, if all wages were subject to tax but not included in the benefit calculation, high-income people would receive very low replacement rates. This could result in reduced support for maintaining Social Security as a universal program that provides retirement security for virtually all workers.

Increasing the contributions and benefit base to cover a larger portion of wages would affect only workers earning more than the 2017 maximum of $127,200. (If the wage base were 90 percent, the taxable maximum would have been about $282,900 in 2017.)

The Wage Base: Policy

Increasing the wage base

In this policy: Federal

AARP supports increasing the percentage of wages subject to the payroll tax at least to historically intended levels. More generally, AARP supports increasing the progressivity of the Social Security financing system.