As the 2020 presidential election slowly comes into focus, one thing is clear: There is no shortage of hot-button topics that the American public care about. Perhaps chief among those is Social Security.

Today, Social Security is responsible for making more than 63 million benefit payments each month, with 62% of retired workers (retirees make up 70% of these beneficiaries) leaning on their payout for at least half of their monthly income. Suffice it to say, without the Social Security program, we'd be contending with a pretty serious elderly poverty problem.

Two Social Security cards lying atop fanned piles of cash.

Image source: Getty Images.

Social Security is facing an uncertain future

But just because Social Security exists, and is in absolutely no danger of insolvency, it doesn't mean that the program isn't without its own unique set of problems.

According to the 2019 Social Security Board of Trustees report, a number of ongoing demographic changes are expected to result in America's top social program expending more than it collects in 2020, which would be the first time that's happened since 1982. Should Congress fail to act, Social Security's $2.9 trillion in asset reserves could be completely exhausted as the result of net-cash outflows by the year 2035. Should this happen, sizable benefit cuts may need to be passed along to then-current and future retirees. It's not the rosiest outlook, that's for sure.

At the heart of these problems is how Social Security should be fixed. And arguably the biggest dilemma of all is what, if anything, should be done with Social Security's payroll tax.

President Trump waving as he board Air Force One.

President Trump boarding Air Force One. Image source: Official White House Photo by Shealah Craighead.

The payroll tax dilemma, as highlighted by Donald Trump

The payroll tax is the program's workhorse. Last year it generated $885 billion of the just over $1 trillion that was collected by the program. The way the payroll tax works is that all earned income (i.e., wages and salary) between $0.01 and $132,900, as of 2019, is subject to the tax. The self-employed and self-proprietors are responsible for paying the entirety of this 12.4% tax on earned income. Meanwhile, if you're employed by someone else or a company, you and your employer split this liability down the middle, with each responsible for 6.2%.

The issue, as you might have guessed, is the aforementioned "cap" at $132,900. Although this cap increases annually with the National Average Wage Index, it still allows wealthy workers with earned income above $132,900 to escape having some, or most, of their earnings subject to the payroll tax.

Take President Donald Trump as the perfect example. As president, Trump is entitled to a salary of $400,000 a year. Additionally, he makes an undisclosed, but presumably sizable, amount of earned income from his businesses. He's easily surpassing $132,900 in earned income each year, meaning that he's paying the maximum of $16,479.60 into the system via the payroll tax in 2019. However, every dollar above $132,900 is exempt from the payroll tax, allowing "The Donald" to hang onto more of his income this year, and every subsequent year before 2019.

But this isn't just a Trump exemption. It's open to anyone who'll earn more than $132,900 in income this year. In 2016, the Social Security Administration calculated that $1.2 trillion in earnings from the well-to-do escaped taxation, thereby costing Social Security almost $150 billion in taxable revenue. That's up from a little over $300 billion that was exempt in the mid-1980s. As the rich have grown richer, the amount of earnings escaping the payroll tax has grown considerably.

Two Social Security cards lying atop a W2 tax form highlighting payroll taxes paid.

Image source: Getty Images.

To raise the cap or not to raise the cap, that is the question

Ultimately, the payroll tax dilemma has two options: Do something, or do nothing.

The Democrats have proposed raising, or even eliminating, the payroll tax cap in order to quickly generate additional revenue that'll help support Social Security. Although estimates tend to vary, removing the cap entirely might be enough to avoid any possibility of benefit cuts over the next 75 years, although this assumes consistent birth rates, steady net immigration, and a host of other factors that could change in the decades to come. Removing the cap would mean that wealthy individuals like Donald Trump could be paying the 12.4% payroll tax on millions, or tens of millions, of dollars. Rather than capping at $16,479.60 in payroll taxes paid in 2019, Trump might owe $1 million or more to Social Security, depending on his as-of-now-unknown taxable income.

The Democrats' proposal certainly has its finer points. For instance, raising or removing the cap provides an immediate boost in program revenue that would potentially eliminate the cash shortfall over the next 75 years. It also tackles the very real issue of more and more earned income escaping the grasps of the payroll tax. But, like every single Social Security proposal, it's not perfect.

There are two predominant issues with raising or eliminating the taxable earnings cap. First, it has virtually no support from members of the Republican Party. It's not good enough to just have a simple majority in the Senate. If amendments are going to be made to Social Security, they need 60 votes for passage in the Senate. This implies the need for bipartisan support, which simply doesn't exist when it comes to increasing taxation on the wealthy.

A smiling businessman in a suit laying on a bed of cash.

Image source: Getty Images.

The second, and certainly more debatable issue, is that the rich are already paying their fair share into the program.

Now, I know what you're potentially thinking: "If Donald Trump makes $5 million, $50 million, or $500 million in a year [and we assume this is all earned income, since investment income isn't applicable to the payroll tax], he should pay more than $16,479.60 in payroll tax!" But look at the other side of the coin: According to the Social Security Administration, full retirement benefits are capped in 2019 at $2,861 a month. So even though only a small sliver of Trump's earnings are subject to the payroll, his maximum monthly payout from Social Security is also capped at a relatively low number compared to his annual earnings. In other words, the cap, as it stands now, makes sense given that payouts to the wealthy from the program are also capped.

In sum, resolving Social Security's imminent cash shortfall and tackling the payroll tax dilemma are not going to be easy.