For those who advocate eliminating the payroll cap for Social Security taxes, February 18 is “Valentine’s Day for millionaires,” the day when last of the millionaires in the United States will stop contributing to Social Security for the entirety of 2019. The richer they are, the earlier their gift arrives: Based on his 2016 income, President Trump ceased contributing to Social Security just 40 minutes into the new year. This year Senator Bernie Sanders introduced a new Social Security bill and the Center for American Progress and the Center for Economic and Policy Research released reports to mark the day.
The Social Security Expansion Act, which Sanders first introduced in 2017, is also being introduced in the house by Representative Peter DeFazio. It would increase benefits for all recipients, with low-income seniors receiving a boost of nearly $1,300 a year. It would also make the annual cost of living adjustment more generous by shifting the formula to take into account health care and prescription drug costs, which rise faster than inflation. To pay for it, Sanders would subject all income above $250,000 to the existing 12.4% Social Security payroll tax, which is split between workers and employers. Currently, the payroll tax is only applied to wages up to $132,900. Plus, the senator would levy a new 6.2% tax on single people with investment income above $200,000 and couples above $250,000. This extra revenue would extend the health of Social Security by 52 years, according to Sanders' office.
The report from the Center for Economic and Policy Research looks at “Who Pays If We Modify the Social Security Payroll Tax Cap?” They conclude that roughly 1 in 16 people, or 6.2 percent of workers, earn more than the current cap and would be affected if it were eliminated. If wage earnings above $250,000 were subject to the tax, the top 1.8 percent of workers would be affected. If earnings over $400,000 in wages were subject to the tax, only the top 1.0 percent would be affected. They say, “Expanding the taxable earnings base by raising or eliminating the cap would go a long way in strengthening Social Security and sustaining the program indefinitely.”
The Center for American Progress presents “Here’s How Much America’s Rising Income Inequality Is Costing Social Security.” They claim that weak wage growth for everyday workers has dampened payroll tax revenues, an increasing share of rich Americans’ earnings escapes taxation, and that the gap between the bottom and the middle has widened. In conclusion, they estimate “that if Social Security’s taxable wage base had remained at 90 percent of earnings since 1983, the assets in the combined trust funds would have been $1.4 trillion greater at the end of 2017. This alone would close nearly 11 percent of Social Security’s anticipated 75-year funding shortfall. Furthermore...if the average worker’s wages had kept pace with their productivity since 1983, the assets in the combined trust funds would have been $570 billion greater at the end of 2017.”