The Medicare and Social Security Fair Share Act would apply not only a 1.2 % payroll tax on those earning more than $ 400,000 , but would also apply a 12.4 % tax on net investment income earnings from active S corporations and limited partnerships , as well as hedge funds and private equity , beginning in 2024 .

“ Right now , people living off of income from their wealth make no Social Security contributions ,” said Sen . Sheldon Whitehouse , the bill ’ s sponsor , in a statement . Whitehouse , a Democrat from Rhode Island and chairman of the Senate Budget Committee , added , “ That ’ s not fair , and my bill would also fix that . Some wealthy owners of passthrough businesses like hedge funds and private equity firms avoid paying Medicare taxes entirely on much of their income . My bill would close this loophole .”

The net investment income tax would apply to the lesser of net interest income and the excess of modified adjusted gross income ( MAGI ) above the unindexed thresholds of $ 400,000 for a single filer and $ 500,000 for a married couple filing jointly , according to the bill , which was introduced in July .

Currently , the income tax cap for Social Security contributions is $ 160,200 . That needs to change if Americans want to shore up Social Security ’ s Old Age , Survivors , and Disability Insurance ( OASDI ) Trust Fund , which , according to the most recent estimates , will be insolvent by 2033 , requiring an across-theboard benefit cut of 20 %, Whitehouse said .

“ Right now , the cap on Social Security contributions means a tech exec making $ 1 million effectively stops paying into the program at the end of February , while a schoolteacher making far less contributes through every single paycheck all year ,” Whitehouse said . The bill would also require taxpayers with incomes above $ 400,000 to contribute an additional 1.2 % to Medicare and close the loophole favoring higher earners , Whitehouse said .

The reforms in Whitehouse ’ s bill would extend Social Security solvency 75 years and Medicare solvency 25 years , says Steve Goss , the chief actuary at the Social Security Administration .

While almost everyone agrees Social Security and Medicare are on the road to insolvency , not everyone agrees that Whitehouse ’ s legislation goes far enough or can shore up each of the funds with income tax hikes alone .

“ Some combination of spending reforms and tax increases will ultimately be needed to solve this issue ,” says Alex Durante , an economist at the Tax Foundation , a nonprofit think tank focused on tax issues .

“ The problem with relying solely on lifting the payroll tax cap , however , is that without an offsetting reform many taxpayers would be facing very high top marginal rates , especially in some states , and that would almost certainly have negative impacts on the economy ,” Durante adds .

Maria Freese , a senior legislative representative at the National Committee to Preserve Social Security & Medicare , said by email that her group supports the higher taxes on the wealthy , but it is still reviewing Whitehouse ’ s bill .

” Some wealthy owners of passthrough businesses like hedge funds ... avoid paying Medicare taxes entirely on much of their income . My bill would close this loophole .”

— Sen . Sheldon Whitehouse

“ Adjusting the income cap to bring more revenue into Social Security is crucial , but other reforms are needed , including enhancing benefits across the board and for the most vulnerable seniors ,” she said . It also means calculating cost-of-living adjustments for seniors by adopting the CPI-E , the Consumer Price Index for the elderly , she added .

The legislation stands a much higher chance of passage in the Senate than it does in the GOP-dominated House , which has called only for a bipartisan commission to study the issue . Republicans , led by House Speaker Kevin McCarthy , avoided touching Social Security when lawmakers crafted the recent bipartisan compromise to raise the debt ceiling .

— Tracey Longo activity for fiscal 2023 , ended June 30 , “ despite the recent economic and market volatility , and it demonstrates the resiliency of donor-advised funds ,” Schwab says .

Donor-advised funds are also popular because they can be used in estate planning , according to the Foster Group , a financial advisory firm with offices in West Des Moines , Iowa , and Omaha , Neb .

“ By incorporating [ donor-advised funds ] into estate planning , clients can benefit from several advantages , including greater tax benefits , flexibility , and control over their charitable giving . [ The funds ] offer a simple and convenient way for clients to manage their charitable giving , with the added benefit of being able to donate appreciated assets , such as stocks or real estate , without incurring capital gains taxes ,” the Foster Group says .

— Karen DeMasters

SEPTEMBER 2023 | FINANCIAL ADVISOR MAGAZINE | 9