How Taxing Stocks and Benefits Could Save Social Security
Social Security faces insolvency in six years. Beyond payroll taxes, new revenue ideas could shift who picks up the tab.
Here's the uncomfortable truth: Social Security is on track to run dry within six years. When that happens, benefits could get slashed automatically — not a great outcome for the tens of millions of Americans who depend on those monthly checks. So policymakers and economists are brainstorming ways to keep the program afloat that go well beyond the usual "just raise payroll taxes" playbook.
One set of ideas involves broadening what gets taxed in the first place. Right now, payroll taxes only bite into your wages. But what about investment income — capital gains from selling stocks, dividends, or interest? If wealthier Americans who earn a bigger share of their income from investments were brought into the Social Security funding equation, that could meaningfully close the program's funding gap. The tradeoff, of course, is that this would hit higher earners and investors hardest.
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Estate taxes are another lever being discussed. Large inheritances currently pass between generations with relatively light federal taxation, and some proposals would direct new revenue from taxing those wealth transfers toward shoring up Social Security's trust funds. Again, this would disproportionately affect wealthier households — which is partly the point, and partly the political fight.
Employee benefits are also in the conversation. Certain employer-provided perks enjoy favorable tax treatment, and stripping some of that away could generate additional revenue for the program. Workers with generous benefit packages — typically higher-earning professionals — would feel this change more than hourly workers with fewer perks to begin with.
The bottom line is that there's no painless fix here. Every option redistributes the burden somewhere, and the political will to actually pass any of these measures remains very much in question. But the six-year clock is ticking, and doing nothing is its own kind of choice. Continue reading at MarketWatch.com
