TESTIMONY OF GEORGE K. YIN 

CHIEF OF STAFF 

OF THE 

JOINT COMMITTEE ON TAXATION 

AT A HEARING OF THE SENATE COMMITTEE ON FINANCE ON 

“SOCIAL SECURITY: ACHIEVING SUSTAINABLE SOLVENCY” 

May 25, 2005 

Mr. Chairman, Senator Baucus, members of the Committee, thank you for inviting me to 

testify today. I have been asked to present to the Committee various tax legislative changes that 

might be adopted to improve the solvency of the Social Security system. After a brief summary 

of current law, I will describe possible changes to the employment tax base and certain options 

relating to the employment tax rate and cap. I have included in my testimony very preliminary 

revenue estimates of most of the options presented, assuming they are implemented in 2006 with 

no transitional relief or phase-in. These estimates reflect the most recent baseline provided by 

the Congressional Budget Office (“CBO”) and, with respect to options to expand the 

employment tax base, include outlay effects associated with the impact of the proposals on 

Social Security and Medicare benefits as provided to the Joint Committee staff by CBO. 

Summary of Current Law 

As part of the financing for Social Security and Medicare benefits, a tax is imposed on 

the wages of an individual received with respect to his or her employment under the Federal 

Insurance Contributions Act (“FICA”). A similar tax is imposed on the net earnings from selfemployment under the Self-Employment Contributions Act (“SECA”). 

The FICA tax consists of two parts: (1) old-age, survivor and disability insurance 

(“OASDI”), which correlates to the Social Security program that provides monthly benefits after 

retirement, disability, or death; and (2) Medicare hospital insurance (“HI”). The OASDI tax rate 

is 6.2 percent on both the employee and employer (for a total rate of 12.4 percent). The OASDI 

tax rate applies to wages up to the OASDI wage base ($90,000 for 2005) (the “tax cap”). The HI 

tax rate is 1.45 percent on both the employee and the employer (for a total rate of 2.9 percent). 

Unlike the OASDI tax, the HI tax is not limited to a specific amount of wages, but applies to all 

wages. 

JOINT COMMITTEE ON TAXATION 

May 25, 2005 

JCX-38-05 
2 

Similarly, the SECA tax has two components. Under the OASDI component, the rate of 

tax is the combined employer and employee rates under the OASDI portion of FICA (12.4 

percent). Under the HI component, the rate is the combined employer and employee rates under 

the HI portion of FICA (2.9 percent). The OASDI portion of SECA tax is subject to the same 

limit as under FICA, i.e., this component is capped at $90,000 of self-employment income (for 

2005). The amount of self-employment income subject to HI taxes is not capped. 

For SECA tax purposes, net earnings from self-employment generally include gross 

income derived by an individual from any trade or business carried on by the individual, less the 

deductions attributable to the trade or business. Specified types of income or loss are excluded, 

such as rentals from real estate in certain circumstances, dividends and interest, and gain or loss 

from the sale or exchange of a capital asset, from timber and certain mineral property, or from 

other property that is neither inventory nor held primarily for sale to customers. 

Possible Changes to the Employment Tax Base 

Before considering possible employment tax rate changes or an increase to the 

employment tax cap, the Committee should examine areas in which the employment tax base is 

not comprehensive. Distortions created by exceptions to the base may be exacerbated if they are 

permitted to continue with an increase in tax rates or the tax cap. Set forth below are a number 

of possible ways to improve the comprehensiveness of the employment tax base. Almost all of 

these options were included in the recent Joint Committee staff report on “Options to Improve 

Tax Compliance and Reform Tax Expenditures.”1

 As you know, this report was prepared in 

response to a request from the Chairman and Ranking Member. A detailed description and 

analysis of these options may be found in the published report. 

1. Modify Determination of Amounts Subject to Employment Tax for Partners and S 

Corporation Shareholders 

Present law provides different employment tax treatment of individuals who are owners 

of interests in passthrough entities and perform services in the business. S corporation 

shareholder-employees are treated like other employees, and therefore their wages from the 

corporation are subject to FICA tax. In contrast, a broader category of income of general 

partners, that is, the partners’ distributive share (whether or not distributed) of income from any 

trade or business carried on by the partnership, is subject to SECA tax. The distributive share of 

income of limited partners is generally not subject to employment tax, and the employment tax 

 1

 Joint Committee on Taxation, Options to Improve Tax Compliance and Reform Tax 

Expenditures (JCS-02-05), January 27, 2005. The report proposes a number of options relating to FICA 

and SECA taxes. The proposals relating to FICA may have the effect of increasing FICA taxes imposed 

on some employers and employees. Likewise, the proposals relating to SECA taxes may have the effect 

of increasing SECA taxes for some individuals. In the case of individuals whose earnings equal or exceed 

the OASDI taxable wage base without regard to a proposal, only HI tax will apply to the additional 

earnings that result under the proposal. The FICA and SECA proposals will result in increasing revenues 

for the Social Security and Medicare programs. In addition, requiring additional amounts to be subject to 

FICA and SECA taxes may increase benefits for some individuals, as well as long-term costs under such 

programs. 
3 

treatment of partners who are neither limited nor general partners is uncertain. These differences 

may cause a taxpayer’s choice of business form to be motivated by a desire to avoid or reduce 

employment tax, rather than by nontax considerations. 

Certain of these distinctions arise as a result of outdated State law concepts. For 

example, because State law historically prohibited limited partners from performing services for 

their partnerships, their share of partnership income, except for guaranteed payments received by 

the partner for services rendered, was not made subject to SECA tax. Many State laws no longer 

have this limitation. In addition, there is much uncertainty caused by the widespread use of 

limited liability companies (“LLCs”), which are generally treated like partnerships for Federal 

tax purposes. Some LLC owners may view themselves as comparable to limited partners for 

employment tax purposes and some may take the position that neither SECA nor FICA tax 

applies. 

A shareholder of an S corporation who performs services as an employee of the S 

corporation is subject to FICA tax on his or her wages, but generally is not subject to 

employment tax on the shareholder’s distributive share of income. It has become increasingly 

common for individuals who perform services in businesses that they own to choose the S 

corporation form to seek to reduce their employment taxes. S corporation shareholders may pay 

themselves wages below the tax cap, while treating the rest of their compensation as a 

distribution by the S corporation in their capacity as shareholders.2

 They may take the position 

that no part of their S corporation distributive share is subject to employment tax. While present 

law provides that the entire amount of an S corporation shareholder’s reasonable compensation is 

subject to FICA tax in this situation, enforcement of this rule by the government may be difficult 

because it involves factual determinations on a case-by-case basis. 

Under the proposal in the Joint Committee staff report, the present-law rule for general 

partners generally applies to any owner of a partnership or S corporation (including a general or 

limited partner, an owner of an LLC treated as a partnership for Federal tax purposes, and a 

shareholder of an S corporation) for SECA tax purposes. Thus, all such owners are generally 

subject to SECA tax on their distributive shares (whether or not distributed) of the entity’s 

income. As under present law, specified types of income are excluded from SECA tax, such as 

certain rental income, dividends and interest, certain gains, and other items. However, under the 

proposal, in the case of a service entity, all of the owner’s net income from the entity is treated as 

net earnings from self-employment.3

 If any owner does not materially participate in the trade or 

business of the entity, a special rule provides that only the owner’s reasonable compensation 

from the entity is treated as subject to SECA tax. Thus, some general partners who are subject to 

 2

 Because the HI component of the FICA and SECA taxes has no wage cap, this approach may 

be viewed as a tax planning opportunity with respect to HI tax even at higher wage levels. 

3

 A service entity is an entity, substantially all of whose activities involve the 

performance of services in the fields of health, law, engineering, architecture, accounting, 

actuarial science, performing arts, or consulting (similar to Internal Revenue Code sec. 

448(d)(2)). 
4 

SECA tax on their distributive shares of partnership income under present law will be subject to 

SECA tax only on reasonable compensation from the partnership under the proposal. 

The conceptual premise of the proposal is that the base for FICA and SECA taxes is labor 

income. The proposal applies this notion more uniformly than does present law to individuals 

who perform services for or on behalf of a passthrough entity in which they own an interest (i.e., 

a partnership, limited liability company, or S corporation). The proposal treats such individuals 

similarly to sole proprietors, as well as similarly to each other. Not only does this more uniform 

treatment improve the fairness of the tax law and increase the internal consistency of the tax 

rules, it also tends to improve tax neutrality by reducing the importance of FICA and SECA tax 

differences in taxpayers’ choice of business entity. 

Over the period 2006-2015, this option is estimated to increase on-budget revenues by 

$36.3 billion, increase off-budget revenues by $28.2 billion, and increase outlays by $0.5 billion, 

for a net increase in revenues of $64 billion overall. 

2. Impose Withholding on Certain Payments Made by Government Entities 

IRS studies have consistently shown that the underreporting of compensation income by 

sole proprietors and others not subject to wage withholding is the single largest contributor to the 

tax gap. To address this problem, the Joint Committee staff report includes a proposal to impose 

withholding on certain government payments for goods and services that are not currently 

subject to withholding. Because such payments represent a significant part of the economy, the 

proposal can be expected to improve compliance to a significant extent without burdening any 

private sector payors. The proposal thus attempts to balance the goals of improving compliance 

and not creating undue administrative burdens. The proposal exempts smaller governmental 

entities from the withholding requirement. 

This proposal can be expected to increase income tax and employment tax revenues, both 

by collecting some tax from the transaction and by stimulating voluntary reporting and payment 

of tax apart from any amounts actually withheld. Other proposals in this area have been 

suggested which would impose withholding in additional situations. For example, the National 

Taxpayer Advocate has proposed imposing withholding on all payments to nonemployees.4

 

Proposals that increase withholding could generally be expected to have additional positive 

impact on both income and employment taxes. 

Over the period 2006-2015, this option is estimated to increase on-budget revenues by 

$6.4 billion.5

 4

 National Taxpayer Advocate, 2004 Annual Report to Congress, Publication 2104 (Rev. 12-

2004), at 484. The proposal is discussed in detail in National Taxpayer Advocate, 2003 Annual Report to 

Congress, Publication 2104 (Rev. 12-2003) at 256-269. 

5

 At present, the estimate for this proposal does not separately identify the income tax effect 

from possible FICA or SECA effects and does not incorporate the most recent CBO baseline.
5 

3. Provide Consistent FICA Treatment of Salary Reduction Amounts 

Under present law, certain retirement and other employee benefits may be provided 

through salary reduction contributions by employees. Present law provides inconsistent 

treatment of such salary reduction amounts for FICA purposes. Contributions made to taxfavored retirement plans by salary reduction, such as contributions to 401(k) plans (including the 

Federal Thrift Savings Plan), are wages for FICA purposes. However, salary reduction amounts 

used to provide other benefits are excluded from wages for FICA purposes. The types of 

nonretirement benefits that may be provided on a salary reduction basis include health coverage 

(insurance as well as reimbursement of expenses not covered by insurance), dependent care 

assistance, certain group-term life insurance, and qualified parking, van pooling and transit 

benefits. 

Legislative history indicates that salary reduction retirement contributions are included in 

the FICA tax base in order to avoid undermining that base and making the Social Security 

system partially elective. This rationale for the FICA treatment of retirement plan contributions 

made by salary reduction applies equally to salary reduction amounts used to provide other 

benefits. 

The Joint Committee staff report proposes providing consistent treatment of salary 

reduction amounts for FICA purposes. One effect of the proposal is to provide more consistent 

FICA treatment of amounts paid by employees to purchase benefits, regardless of whether the 

benefits are provided through an employer-sponsored plan. For example, under present law, an 

employee who cannot purchase health insurance through his or her employer must pay FICA tax 

on his or her salary, including any amounts used to purchase individual health insurance 

coverage. Under the proposal, similar FICA treatment applies to salary reduction amounts used 

to purchase health insurance coverage on a salary reduction basis. 

Over the period 2006-2015, this option is estimated to increase on-budget revenues by 

$42.4 billion, increase off-budget revenues by $182.9 billion, and increase outlays by $2.6 

billion, for a net increase in revenues of $222.7 billion overall. 

4. Conform Calculation of FICA Taxes and SECA Taxes 

The Social Security Act amendments of 1983 were intended to place SECA taxes on the 

same economic footing as FICA taxes. This involved equalizing the FICA and SECA tax rates 

for the first time. At the same time, self-employed taxpayers were allowed a deduction from 

self-employment earnings in recognition of the fact that such earnings include the “employer 

share” of SECA taxes, whereas FICA tax rates apply to wages exclusive of the employer share of 

FICA tax. However, due to a mathematical inconsistency in the calculation of the deduction for 

SECA purposes, self-employment income is taxed more favorably than wages. The Joint 

Committee staff proposal modifies the formula for calculating the deduction from selfemployment earnings to make SECA taxes economically equivalent to FICA taxes. Under the 

proposal, the dollar amount of the deduction from self-employment earnings is equal to one-half 

of SECA taxes owed. 
6 

Over the period 2006-2015, this option is estimated to increase on-budget revenues by $3 

billion, increase off-budget revenues by $1.6 billion, and increase outlays by less than $50 

million, for a net increase in revenues of $4.6 billion overall. 

5. Modify FICA Tax Exception for Students 

Under present law, FICA taxes do not apply to services performed by a student who is 

enrolled and regularly attending classes at a school, college, or university. Legislative history 

provides that this exception (referred to as the “student exception”) is intended to apply to 

situations in which the employment is part-time or intermittent and the total amount of earnings 

is only nominal, the payment of tax is inconsequential and a nuisance, and the related benefit 

rights are also inconsequential. However, the student exception has been viewed by certain 

taxpayers as applying more broadly to include situations that are similar to full-time 

employment. 

The scope of the student exception has been the subject of uncertainty in recent years, 

particularly with respect to its application to medical residents. In two cases, courts have held 

that the student exception applies to medical residents performing services at a hospital or other 

medical facility, whereas another court has held that medical residents are not students for 

purposes of the exception. Uncertainty as to the proper scope of the student exception results in 

part from a lack of clear standards for applying the exception. 

The IRS issued final regulations in December 2004 relating to the terms “school, college 

or university” and “student” for purposes of the student exception. Although these regulations 

help to clarify the scope of the student exception, clear statutory standards would make the 

exception more administrable. The Joint Committee staff report proposes codifying the IRS 

regulations that clarify the scope of the present-law student exception. In addition, the report 

proposes amending the student exception so that it does not apply to individuals whose earnings 

subject to the exception exceed an annual dollar limit. The original intent of the exception can 

be implemented more effectively through such a dollar limit. 

Under the proposal, the student exception applies to an individual for a year only if the 

individual’s earnings from the school, college, or university are less than the amount needed to 

receive a quarter of FICA coverage for the year ($920 for 2005). Thus, if an individual’s 

earnings exceed the limit, the individual’s earnings are subject to FICA, regardless of whether 

the individual otherwise meets the requirements for the student exception. If the limit is 

exceeded, all of the individual’s earnings are subject to FICA, including earnings up to the limit, 

thus enabling the individual to receive at least one quarter of coverage for the year. 

Over the period 2006-2015, this option is estimated to increase on-budget revenues by 

$0.5 billion, increase off-budget revenues by $3.0 billion, and increase outlays by less than $50 

million, for a net increase in revenues of $3.5 billion overall. 

6. Apply Employment Taxes to Sales Incentive Payments Made by Manufacturers 

Under current IRS guidance, commissions or other sales incentive payments paid by a 

manufacturer or distributor to sales people employed by a dealer are includible in gross income, 

but are not subject to FICA or SECA taxes. The basis for this position with respect to FICA 
7 

taxes is that the sales incentive payments are not wages because the sales people are not 

employees of the manufacturer or distributor.6 Further, because the sales people are employees 

of a dealer, they are not self-employed and therefore not subject to SECA taxes. In contrast, in 

other circumstances, under present law, amounts received for services performed by an employee 

from a person other than the employer are generally treated as wages to the same extent as 

amounts received from the employer. Although services performed by sales people who are the 

employees of a dealer benefit the manufacturers and distributors of the products sold, treating 

sales incentive payments as compensation for services for the manufacturer or distributor creates 

an artificial standard that causes inconsistent employment tax results. In effect, by structuring 

compensation as payments from a manufacturer or distributor, the parties can determine among 

themselves to what extent compensation will be subject to employment taxes. This undermines 

the employment tax base. Sales incentive payments are compensation for services and, 

therefore, should be subject to either FICA or SECA taxes. 

The Joint Committee staff report proposes that sales incentives payments made by 

manufacturers or distributors to sales people employed by dealers are wages for FICA tax 

purposes, regardless of whether an employment relationship exists between the sales people and 

the manufacturers or distributors.7 

Over the period 2006-2015, this option is estimated to increase on-budget revenues by 

$0.1 billion, increase off-budget revenues by $0.4 billion, and increase outlays by less than $50 

million, for a net increase in revenues of $0.5 billion overall. 

7. Extend Medicare Payroll Tax to All State and Local Government Employees 

Most workers pay HI taxes during their entire working lives. However, State and local 

government workers are not covered by Medicare or subject to the HI tax if they were hired 

before March 31, 1986, and they are not covered by a voluntary agreement and are covered by a 

retirement plan. Even though not subject to the HI tax with respect to such employment, many 

State and local government workers receive the same Medicare coverage as other workers, either 

through other employment or spousal coverage. 

The Joint Committee staff report proposes extending Medicare coverage on a mandatory 

basis to all employees of State and local governments, without regard to their dates of hire or 

participation in a retirement system. Such employees and their employers would become liable 

for the HI tax and the employees would earn credit toward Medicare eligibility based on their 

covered earnings. Expanding the HI tax to all State and local government workers would 

increase the equity of the payroll tax system. Extending the hospital insurance tax to all State 

and local employees places such employees in a comparable position to most other workers. 

 6

 Under current IRS guidance, sales incentive payments are also not subject to income tax 

withholding. 

7

 The proposal also subjects such payments to income tax withholding.
8 

Over the period 2006-2015, this option is estimated to increase on-budget revenues by 

$4.9 billion and increase outlays by less than $50 million, for a net increase in revenues of $4.9 

billion overall. 

8. Additional Proposals 

The Joint Committee staff report contains other proposals that, while not specifically 

targeted at employment taxes, may have an effect on such taxes. For example, as part of a 

proposal to provide consistent treatment for all taxpayers for dependent care expenses, the report 

includes an option to repeal the exclusion for employer-provided dependent care assistance. This 

proposal would have an effect on both income and employment taxes. Similarly, as part of a 

proposal to provide more consistent treatment for education expenses, the report includes an 

option to repeal the exclusion for tuition reductions. This proposal would likewise have an effect 

on both income and employment taxes. Other proposals that would have the effect of modifying 

exclusions or the calculation of net income from self employment could also have effects on 

employment taxes. 

Proposals beyond those contained in the Joint Committee staff report may also merit 

exploration. For example, as mentioned previously, the National Taxpayer Advocate has a 

proposal that would extend withholding to all payments to service providers subject to 

information reporting. Such a proposal raises issues in addition to those raised by the Joint 

Committee staff option. If adopted, it could also be expected to further increase employment tax 

revenues. 

As another example, the Joint Committee staff option that would impose FICA taxes on 

all benefits provided on a salary reduction basis could be expanded. One possible option would 

be to provide that nonretirement employee benefits are subject to FICA taxes. Such a proposal 

would provide consistent FICA tax treatment with respect to such benefits. A variety of issues 

would need to be addressed under such a proposal that do not arise under the published Joint 

Committee staff option. For example, valuation issues do not arise under the published option 

because the amount of salary reduction is known. However, valuation issues may arise with 

respect to benefits that are not provided on a salary reduction basis. Other policy issues may also 

arise. Depending on how broadly this option is designed, it could be expected to increase 

significantly FICA tax revenues and may also increase Social Security benefits for some 

individuals. 

Proposals Relating to Employment Tax Rates and the Employment Tax Cap 

In addition to, or in conjunction with, expanding the employment tax base, the solvency 

of the Social Security system could be addressed by modifying employment tax rates or the 

employment tax cap. I present here some possible options for discussion purposes.8

 8

 The very preliminary estimates presented with respect to these options do not include possible 

increases in outlays due to increases in benefits. 
9 

1. Remove Employment Tax Cap 

For the period 2006-2015, removing the cap on wages subject to the OASDI portion of 

FICA and SECA taxes, and maintaining the present-law rate, is estimated to increase off-budget 

revenues by $1,477 billion and decrease on-budget revenues by $233 billion, for a net increase in 

revenues of $1,245 billion overall. 

An alternative would be to apply a lower rate to wages above the present-law tax cap. 

For example, a tax could be imposed at a rate of 2.9 percent9

 on wages above the present-law tax 

cap. The rate of tax on wages below the tax cap would remain unchanged. The 2.9 percent 

would be in addition to present-law HI taxes of 2.9 percent. This proposal is estimated to 

increase off-budget revenues by $352 billion and decrease on-budget revenues by $55 billion, for 

a net increase in revenues of $297 billion overall for the period 2006-2015. 

Removing the cap would help increase the solvency of Social Security and would 

increase the degree of progressivity of the Social Security tax structure. It would raise marginal 

tax rates on all earners currently above the cap. Removal of the cap would require a decision as 

to whether benefits should increase for such taxpayers. Increasing benefits for the highest wage 

earning taxpayers may not be desirable given Social Security’s current long-run imbalances. On 

the other hand, to raise the taxes on the highest earners without commensurate benefit increases 

would further break the link between earnings and Social Security benefits. A similar proposal 

with a lower tax rate for the earnings above the current cap would present similar issues but 

would raise less revenue. 

2. Remove Employment Tax Cap, and Lower Employment Tax Rate 

An alternative proposal is to remove the cap on wages subject to the OASDI portion of 

FICA and SECA taxes, but lower the rate on wages so that the proposal is close to revenue 

neutral. Such a proposal would not increase Social Security revenues, but is provided as a means 

of illustrating the trade offs between the rate and the base for the tax. If the tax cap were 

removed, it is estimated that the rate on the employee portion of OASDI taxes could be reduced 

by 1.8 percent, for a resulting rate of 4.4 percent.10 This proposal would result in a decrease in 

revenues of $2.2 billion over the period 2006-2015. 

Removal of the cap while lowering the rate would have effects similar to the first option 

above with respect to progressivity of the Social Security, though to a greater degree. Taxes 

would rise for high earners and fall for low earners, increasing the degree of progressivity of the 

Social Security tax structure. These changes would increase labor supply incentives for workers 

currently below the cap, while decreasing such incentives for those above the current cap. 

Similar to the first option (and raising similar issues), a decision would have to be made as to 

whether higher wage taxpayers would also receive higher benefits due to the expanded wage 

 9

 It is assumed that one-half of the rate increase is imposed on employers and one-half on 

employees. 

10 It is assumed that the rate on the employer portion of OASDI taxes remains the same as under 

present law. 
10 

base. Also, just as increasing benefits for the highest wage earning taxpayers may not be 

desirable given Social Security’s current imbalances, this option’s lowering of the rate of tax 

might be similarly viewed. 

3. Raise the Employment Tax Cap to Apply to 90 Percent of Covered Wages 

Raising the employment tax cap so that it applies to 90 percent of covered wages in 2006 

and thereafter would result in a tax cap of $170,000 for 2006 (from a projected cap of $93,000 

under present law). For the period 2006-2015, this proposal would increase off-budget revenues 

by $664 billion and decrease on-budget revenues by $86 billion, for an increase of $578 billion 

overall. 

Raising the cap to cover 90 percent of wages would help increase the solvency of Social 

Security. Applying OASDI taxes to 90 percent of covered wages was expressed as a goal of 

Congress in the past when issues of Social Security solvency were being addressed.11 Over time, 

indexation has not maintained this level because of greater earnings growth of individuals with 

wages over the tax cap. 

Raising the cap would place the greatest relative burdens on those with earnings near the 

new cap, and cause marginal tax rates to rise sharply for those with earnings between the new 

and the old cap. For this reason, this change could be viewed as regressive as the “lower wage” 

segment of those with earnings above the current tax cap would experience the greatest 

percentage increase in taxes. The same issues as in the options above arise as to whether benefits 

would increase for the affected taxpayers. 

4. Raise Employment Tax Rate 

The rate of OASDI tax could be increased. For example, increasing the OASDI tax rate 

by one-percentage point (one-half of which would be imposed on employers and one-half on 

employees) would increase off-budget receipts by $579 billion and decrease on-budget receipts 

by $61 billion, for a net increase in revenues of $519 billion overall for the period 2006-2015. 

Raising rates without altering the cap would help increase the solvency of Social 

Security. Marginal tax rates would increase for taxpayers below the cap, but remain unchanged 

for those above the cap. Regardless of the rate chosen, this approach distributes the increased tax 

in direct proportion to a taxpayer’s current tax–that is, it maintains the current degree of 

progressivity of the Social Security tax and benefit structure. Since the tax base is not changed, 

this approach does not automatically raise issues related to the benefit side of Social Security that 

arise when the tax base is altered. 

 11 See H.R. Rep. No. 95-702(Part I), 95th Cong., 1st sess. and H.R. Conf. Rep. No. 95-839, 95th

Cong., 1st sess. 
11 

5. Additional Options 

Congress could increase the solvency of Social Security by seeking revenues outside of 

the traditional payroll tax approach. Clearly there would be many ways to do this, spanning all 

of the Federal government’s revenue sources. But all revenue raising measures would 

necessarily involve base broadening or tax rate increases. 

Seeking revenues outside of the payroll structure would represent a major change to 

Social Security financing. Depending on how the revenue was raised, the Social Security system 

could become either more progressive or less progressive. To the extent Social Security is 

funded from general Federal revenues, some might view the change as further breaking the link 

between earnings and Social Security benefits. 

* * * 

The Joint Committee staff looks forward to working with the Committee on the proposals 

contained in the report, as well as in developing additional proposals of interest to the 

Committee. 

Thank you for the opportunity to testify.