Social Security and the “Millionaires Day” Milestone

A new analysislysis from the Center for Economic and Policy Research (CEPR) finds that this coming Monday (March 9) is the day that million-dollar earners stop contributing to Social Security – a milestone that serves as a reminder that the program’s finances could be greatly improved by lifting the cap on earnings.

While the vast majority of working people pay income and payroll taxes on all their earnings throughout the year, the Social Security payroll tax is capped at $184,500. Once a person’s wage and salary income reaches that taxable maximum, they stop paying into the program.

The amount of income above the cap has risen dramatically: in 1983, only 10 percent of income was above the cap, but today it is approaching 20 percent – another illustration of rising income inequality in the country.

Eliminating the cap on taxable earnings would go a long way towards affirming Social Security as a social insurance program, while also fortifying the program’s finances for current and future beneficiaries – an issue that has been a priority for many political leaders over several decades.

While there are always political discussions about how to strengthen Social Security’s finances, many of the prescriptions – like raising the retirement age – are regressive in nature, disproportionately harming working-class workers. Making all workers pay their fair share by eliminating the cap, though, would provide substantial additional revenue without harming workers or retirees.

“Allowing higher earners to stop contributing to Social Security early in the year is a policy choice that shortchanges the program,” said CEPR Labor and Disability Researcher Hayley Brown, who authored the new analysis. “The tax cap on earnings is at odds with the ethos of shared responsibility that underlies social insurance. Lawmakers should reinforce that sense of shared responsibility and the program’s solvency by eliminating the cap.”