Calls to 'Scrap the Cap' Grow as Millionaires Stop Paying Into Social Security for the Year
"Despite earning much more than the average worker, a millionaire's effective tax rate is far lower than the average worker's," noted one researcher.
On Tuesday, not even two full months into 2023, millionaires will stop paying into Social Security for the rest of the year thanks to a cap on taxable income that progressive campaigners and lawmakers want to raise—or eliminate completely.
The Center for Economic and Policy Research (CEPR) marked the occasion by releasing a calculator that allows users to determine the date on which people with certain incomes will be done paying into Social Security for 2023, a tool aimed at highlighting the deep inequality that is depriving the program of crucial funding.
"The vast majority of workers are paid less than $160,200 per year, so they pay the 6.2% Social Security payroll tax on all of the paychecks they receive in 2023," CEPR's Sarah Rawlins wrote Tuesday. "But workers who earn over $160,200 pay no tax on their earnings above this level. For a millionaire, only about 1% or less of their total earnings go to supporting Social Security."
"Despite earning much more than the average worker, a millionaire's effective tax rate is far lower than the average worker's," Rawlins added. "As a result, the burden of supporting Social Security falls most heavily on working-class and middle-class people."
Social Security's payroll cap has long been a target of progressive lawmakers who argue that the program's finances can easily be solidified for the next 70 years by ensuring that the rich contribute a more equitable portion of their income.
Earlier this month, as congressional Republicans weighed schemes to cut benefits, Sens. Bernie Sanders of Vermont and Elizabeth Warren of Massachusetts introduced legislation that would increase Social Security's modest payments by making all income above $250,000 subject to the payroll tax.
The bill, which has not garnered any support from GOP lawmakers, would also extend the payroll tax to "certain business income" that is currently exempt, according to Sanders' office. The wealth of many ultra-rich Americans, including billionaires such as Elon Musk, does not come from wages and is therefore not subject to the Social Security payroll tax.
"Here's the crazy situation. Somebody making $10 million in a year is contributing the EXACT SAME AMOUNT into Social Security as somebody making $160,000," Sanders wrote on Twitter last week. "Let's raise the cap and expand Social Security benefits, not cut them."
"This country's billionaires gained more than $2.1 trillion in wealth since the pandemic began and now have total estimated riches of $5.1 trillion. Meanwhile, almost half of all Americans aged 55 and older have no retirement savings at all."
In an op-ed for Common Dreams on Tuesday, progressive writer Richard Eskow echoed Sanders, arguing that the widening inequities of the payroll tax limit are "why the idea of 'scrapping the cap' on this tax is so compelling."
"This country's billionaires gained more than $2.1 trillion in wealth since the pandemic began and now have total estimated riches of $5.1 trillion," Eskow wrote. "Meanwhile, almost half of all Americans aged 55 and older have no retirement savings at all. The average person on Social Security only gets $1,688 per month. And you're trying to tell us that's what this country can't afford?"
In her blog post, Rawlins of CEPR noted that "the Social Security Trust Fund is projected to fall short of the amount needed to continue paying full benefits in coming years."
"This is largely due to increasing income inequality," Rawlins explained. "When the payroll tax cap was implemented in 1983, only 10% of earnings exceeded it and went untaxed. But by 2021, the amount of earnings above the cap had grown to 18.6%. Continued upward income redistribution has shifted more earnings out of range of the program’s supporting tax."
"Scrapping the payroll tax cap entirely and making everyone pay the same tax rate, along with moderate changes, would close the current projected shortfall and allow for expansions that improve Social Security's adequacy and inclusiveness," Rawlins argued.
