Americans with wages exceeding $1 million will stop paying into Social Security for the year. That’s because anyone earning at least that much hits the Social Security payroll tax cap of $128,400 today, barely seven weeks into 2018.
The average American worker contributes Social Security payroll taxes throughout the year. This red letter day takes on added significance because of the need to address the long-term solvency of Social Security and a political climate where seniors’ earned benefits are under constant threat.
The payroll tax cap prevents billions of additional dollars from flowing into the Social Security Trust fund, which will be able to pay roughly 80 percent of benefits beginning in 2034 (if Congress takes no action).
While some on the political right have advocated cutting benefits and raising the retirement age to address the shortfall, we believe that benefits should be boosted and the program’s solvency strengthened by lifting the payroll tax cap — so that millionaires pay their fair share.
Morris Pearl, chair of Patriotic Millionaires and former managing director at BlackRock, agrees. “Normal Americans pay Social Security tax on every cent of income they earn throughout their entire lives, but millionaires like me pay it on just a fraction of our earnings.
By raising the cap on payroll taxes, we can guarantee that millionaires pay the same rate as everyone else, and we can ensure that our seniors live and retire in dignity.”
Frank Clemente, executive director of Americans for Tax Fairness, says, “Instead of providing massive tax cuts to the richest one percent, we should be making them pay their fair share by scrapping the cap. America is facing a retirement crisis, and by scraping by the cap, we can ensure fully-funded Social Security benefits for all generations to come.”
In the past, the tax cap has been set at a level that covered about 90 percent of all earnings paid in covered employment. Currently, only about 83 percent of earnings are subject to the Social Security payroll tax. This erosion in covered earnings largely stems from the fact that wages for the highest paid 6 percent of workers have been rising faster than wages for the majority of people who make less than the cap.
Raising the payroll tax cap needn’t be an elusive goal. There is already legislation in Congress to do just that. Sen. Bernie Sanders’ (I-Vt.) Social Security Expansion Act would subject earned income over $250,000 to the Social Security payroll tax.
Rep. John Larson’s (D-Conn.) Social Security 2100 Act would apply the payroll tax to wages above $400,000, then phase out the cap altogether. Both bills would modestly increase Social Security benefits and keep the system solvent for most of this century. We believe that if the payroll tax cap is lifted, wealthier Americans who pay more into the system should see their benefits increase, as well.
Surely this solution is preferable to benefit-cutting proposals from the right, all of which ask current and future retirees to bear the burden of bolstering Social Security’s finances.
House Speaker Paul Ryan continues to talk up “entitlement reform,” while House Social Security Subcommittee Chairman Sam Johnson (R-Texas) has introduced legislation that would cut Social Security benefits by more than 30 percent, raise the retirement age from 67 to 69, and reduce cost of living adjustments (COLAs).
Polling suggests that the public prefers the Larson or Sanders proposals for fortifying Social Security’s finances. In a 2017 poll by Lake Research Partners, some 75 percent of voters supported gradually requiring employers and employees to pay Social Security taxes on all wages above the current cap.
Perhaps someday we will not have to mark this day every February that represents such a gross disparity in what working Americans and the wealthy contribute to Social Security.
Max Richtman is president and CEO of the National Committee to Preserve Social Security and Medicare, a membership organization which promotes the financial security, health, and well being of current and future generations of maturing Americans.