For 2021, the wage base limit for Social Security taxes increased to $142,800, meaning that wage/salary income above $142,800 is not taxed for Social Security. That means up to $8,853 can be withheld from your paycheck for Social Security taxes for the year, but not more, regardless of how much you earn. The payroll tax for the Social Security program is 12.4%. One reform idea is to remove the wage base limit so all wage/salary income is subject to the 12.4% payroll tax for Social Security. a. Now that you have some expertise in public finance, please provide policy advice on this reform proposal. Describe the benefits and drawbacks of adopting this proposal. b. What are the implications for behaviors, such as employment, work hours, retirement decisions, etc.? c. Draw a graph to describe the reform and a behavioral change. Explain it.
2. For 2021, the wage base limit for Social Security taxes increased to $142,800, meaning that wage/salary income above $142,800 is not taxed for Social Security. That means up to $8,853 can be withheld from your paycheck for Social Security taxes for the year, but not more, regardless of how much you earn. The payroll tax for the Social Security program is 12.4%. One reform idea is to remove the wage base limit so all wage/salary income is subject to the 12.4% payroll tax for Social Security.
a. Now that you have some expertise in public finance, please provide policy advice on this reform proposal. Describe the benefits and drawbacks of adopting this proposal.
b. What are the implications for behaviors, such as employment, work hours, retirement decisions, etc.?
c. Draw a graph to describe the reform and a behavioral change. Explain it.
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