Millionaires Are Done Paying Into Social Security for the Year
Today is the day most millionaires stop paying into Social Security for the rest of the year, while most of us will continue contributing FICA payroll taxes through the end of December. The payroll tax cap for 2021 is $142,800 in annual wages. As of today, people grossing $1,000,000 a year in wages have now exceeded the cap; hence, no more payroll contributions for millionaires until 2022. If that sounds unfair, it should be noted that billionaires stopped paying into Social Security in January!
In effect, higher income earners pay a significantly smaller percentage of their wages into Social Security than everyone else. This not only is patently unfair; it deprives Social Security of much-needed revenue. Without additional revenue, the Social Security trust fund will become depleted in 2035 (at which time the program could still pay roughly 80% of benefits).
It wasn’t always this way. In years past, 90% of wages earned in this country fell below the payroll tax cap. But due to rising wealth inequality in recent decades, only 82.5% of those earnings are now subject to the Social Security payroll tax.
“The extraordinary growth of income for those at the highest end of the wage scale was not anticipated by those who established the formulas that fund Social Security today. Wages for middle-and-lower income workers have remained stagnant for over a decade, while higher-wage workers have seen significant wage growth during that time.” – www.ncpssm.org
“The income cap is not only regressive, but unnecessary. It has been around since the tax began in 1937, but has not kept up with disproportionate wage growth or explosive wealth inequality. As a result, almost $2 trillion in earnings a year are not subject to the payroll tax, limiting the amount of revenue collected for Social Security.” – Patrioticmillionaires.org
The COVID economy is putting additional strain on Social Security’s finances. Some predict that the drop in payroll tax revenue from chronic unemployment will deplete the Social Security trust fund sooner than previously projected. Adjusting the payroll wage cap would be the surest way to forestall that unfortunate outcome.
The pandemic also has reminded us that Social Security is a financial lifeline to millions of American families. The program is there for older workers who are forced by the pandemic to retire early. It is also there for widows, widowers, and children of family breadwinners who pass away. Working Americans cannot afford to see Social Security’s finances further eroded because the wealthy don’t pay their fair share.
For years, we and other seniors’ advocates have supported “scrapping” the payroll wage cap – either immediately or over a period of time. After four years of a Trump presidency and GOP control of the Senate, we finally have a chance to make this happen. If Congress is able to muster the political will, Social Security’s finances can be strengthened in a fair and equitable way. The electorate has given us a golden opportunity. In fact, public opinion polling indicates broad support for eliminating the wage cap.
For his part, President Biden proposes to re-instate the payroll tax at $400,000 in annual wages. That closely tracks the payroll tax provisions in Rep. John Larson’s Social Security 2100 Act. Lifting the cap would extend the solvency of the Social Security trust fund. It also would help cover the cost of boosting Social Security benefits, which both President Biden and Rep. Larson want to do. The President would start by increasing benefits for some of the most financially vulnerable members of society — low-income workers, widows and widowers, and retirees over 85 years of age.
So-called ‘fiscal conservatives’ argue that Social Security must be cut in order to save it, by raising the retirement age, means testing or by other measures. We disagree. It’s unfair to ask seniors, workers with disabilities, and their families to bear the brunt of strengthening Social Security’s finances. The more equitable path is to ‘Scrap the Cap,’ so that the wealthy pay their fair share — and all Americans can count on the benefits they’ve earned over a lifetime of work.