At a glance
- The levy would reach pay above Social Security's wage cap, $184,500 this year and $192,300 in 2027.
- For advisors, the exposure sits with business-owner clients offering generous health, retirement or stock benefits, since the levy would make those benefits taxable.
- Employees would keep paying Social Security tax only up to the existing ceiling, and the benefit formula would not change, so a larger employer levy would not by itself produce larger retirement checks.
The Committee for a Responsible Federal Budget would replace employer Social Security and Medicare payroll taxes with a 7.65% levy on virtually all compensation, raising an estimated $2.5 trillion, Financial Advisor Magazine reported Nov. 4.
The levy would reach pay above Social Security's wage cap, $184,500 this year and $192,300 in 2027. It would extend to benefits now exempt, including employer-sponsored health insurance, retirement plan contributions, stock options and other noncash compensation.
For advisors, the exposure sits with business-owner clients offering generous health, retirement or stock benefits, since the levy would make those benefits taxable.
Employees would keep paying Social Security tax only up to the existing ceiling, and the benefit formula would not change, so a larger employer levy would not by itself produce larger retirement checks. The Tax Foundation estimates the highest-earning 20% of taxpayers would see the largest reduction in after-tax income, about 1.5%, in 2036.
The proposal lands as Democrats prepare to control both chambers of Congress following Tuesday's midterm elections, as Private Wealth Daily previously reported. It also follows a bipartisan push to eliminate Social Security's taxable wage ceiling: in June, two senators, Massachusetts Democrat Elizabeth Warren and Republican Bernie Moreno of Ohio, announced they were developing legislation to eliminate the cap entirely, which would subject all covered wages to the combined 12.4% tax. "We've done the analysis, and we think it raises about the same amount of money, but it does it in a lot more efficient way," said Marc Goldwein, the committee's senior vice president and senior policy director, in an interview with Financial Advisor.
We've done the analysis, and we think it raises about the same amount of money, but it does it in a lot more efficient wayMarc Goldwein, senior vice president and senior policy director, Committee for a Responsible Federal Budget
Reported by the RIA desk from Financial Advisor Magazine. Published . Corrections