Who would pay more if we lift the cap on payroll taxes?

Progressives have been arguing for some time now that one of the best ways to close Social Security’s long-range funding gap would be to lift the cap on maximum wages subject to payroll taxes. This year, the cap is $118,500; there’s a basic fairness argument here, in that a wage-earner below that figure is taxed on every dollar of earnings, while those above pay progressively lower rates on total income.

Scrapping the cap fits the populist agenda that Democrats are starting to embrace. It’s been proposed by several Senate Democrats and it would have been a great fit with the generally progressive tax agenda outlined by President Obama in his State of the Union address this week, had he only chosen to include Social Security reform in his plans. A new analysis of Census Bureau data by the Center for Economic and Policy Research (CEPR) shows that this truly would be a move toward greater economic equality and fairness: the richest 6.1 percent of workers would pay more if the cap were scrapped. Only the top 1.5 percent and 0.7 percent would be affected if the tax were applied to earnings over $250,000 and $400,000, respectively.

I ran the numbers today over at WealthManagement.com.

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