A 2016 presidential candidate is proposing a solution that he says will help shore up Social Security while also encouraging Americans to save more for retirement: giving a payroll tax cut to Americans who work past age 62.
This past spring, New Jersey Governor Chris Christie—a Republican presidential contender for 2016—laid out a tax plan. Among his proposals, he recommends eliminating the 12.4% Social Security payroll tax for workers age 62 and older. Workers typically pay half of the tax, while their employers pay the other half.
The idea, Christie says, is to encourage workers approaching retirement age to stay in the workforce longer. It would also have the double benefit, he contends, of reducing pressure on Social Security by prompting fewer workers to start claiming Social Security retirement benefits at the earliest possible age—currently 62. (Christie also proposed eliminating the payroll tax for workers under age 21.)
"Let's encourage those nearing retirement to keep working should they want to", Christie said in a Wall Street Journal op-ed. "And let's make it easier for the young to enter the workforce. Both will be good for America."
Christie isn't the first person to propose such a payroll tax cut. Another Republican presidential candidate, Senator Marco Rubio of Florida, proposed last year eliminating the payroll tax for workers who reach full retirement age, according to South Florida's Sun Sentinel.
Some economists and tax policy experts have made similar proposals. Andrew Biggs, a resident scholar at the American Enterprise Institute and a former principal deputy commissioner of the Social Security Administration, argued in the Wall Street Journal in 2012 that many Americans retire early and start claiming Social Security benefits at age 62 because they see little incentive for them to work longer. How Social Security benefits are calculated, he says, discourages people nearing retirement to keep working.
Biggs points to a 2009 study he co-authored for the Social Security Administration's Office of Retirement and Disability Policy that found that "for each dollar of additional payroll taxes a near-retiree pays into the system, he or she receives only around 2.5 cents in extra lifetime benefits."
He also points to a 2005 study by Eric French of the Chicago Federal Reserve that found that increasing the take-home pay of workers age 62 and older by 10% would increase that age group's labor supply by 18%, and increase the overall U.S. labor supply by 1.1%.
"Obviously, reducing or even eliminating the payroll tax for older workers would lower Social Security revenues," Biggs adds. "But increased labor-force participation would raise non-Social Security tax collections."
Not everyone thinks eliminating the payroll tax for older workers is a winning idea, however. Critics say giving older workers such a big Social Security tax break would hurt the Social Security program's reserves, which are already expected to run out by 2030.
Some economists and politicians have proposed other ways to shore up Social Security, such as increasing the maximum income that can be subject to Social Security tax, which is currently $118,500.