El-Sayed Backs Uncapping the Payroll Tax: What are the Potential Costs for Michigan?

The barbs flew when Mike Rogers and Abdul El-Sayed met on the debate stage, but beyond the personal clashes was a proposal with potentially far-reaching consequences for Michigan: eliminating the payroll tax cap, raising taxes on middle class families and employers.

“We should eliminate the cap,” El-Sayed said during the debate. The organization argues the proposal would impose substantial additional costs on Michigan’s self-employed workers and business owners.

Removing the ceiling would extend a combined 12.4% payroll tax to covered earnings above $184,500, the current annual limit. Employees and employers each pay 6.2%, while self-employed workers are responsible for both portions. The increase would apply to earnings above the threshold, rather than imposing a new tax on everyone’s entire paycheck.

Americans for Tax Reform calculates that stacking the expanded payroll tax with top federal income taxes, Medicare taxes and Michigan’s income tax produces a combined statutory rate of 57.45%. That figure includes both payroll-tax shares; it is not an effective tax rate paid by every Michigan business or household.

According to analysis by the Heritage Foundation, the economic consequences could extend beyond those directly receiving larger tax bills. Higher employer payroll costs can translate into lower wages as businesses adjust compensation. The analysis also argues that higher marginal taxes discourage additional work, saving and investment, potentially weakening economic growth and reducing revenue from other taxes.

The capped tax funds Social Security, and eliminating the ceiling would raise additional revenue for the program. However, Heritage’s analysis cautions that the financial effect depends partly on whether higher contributions generate higher benefits and how workers and employers respond.

A separate Heritage Foundation study projected fewer employment opportunities and lower personal savings following cap removal. Those historical estimates are not a forecast of El-Sayed’s proposal, but they illustrate the potential tradeoff: additional government revenue accompanied by pressure on wages, investment and hiring.