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 2023 is $160,200 in annual wages. As of today, people grossing $1,000,000 a year in wages have now exceeded the cap. No more payroll contributions for millionaires until 2024! 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 combined 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
Even millionaires recognize this is unfair. As the advocacy group Patriotic Millionaires points out:
“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 pandemic reminded us that Social Security is a financial lifeline to millions of American families. The program is there for older workers who were 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. If Congress is able to muster the political will, Social Security’s finances can be strengthened in a fair and equitable way. In fact, public opinion polling indicates broad support for eliminating the wage cap.
Senator Bernie Sanders, Senator Elizabeth Warren, and Rep. Jan Schakowsky have re-introduced a bill, the Social Security Expansion Act, which would adjust the cap so that wages above $250,000 would now be subject to the payroll tax. Along with a tax on investments for the wealthy, this provision would keep the trust fund solvent until almost the end of the century. It would also fund the expansion of benefits to all beneficiaries — in addition to special increases for the most vulnerable seniors.
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, which has not yet been reintroduced in the 118th Congress, but probably will. Rep. Larson’s bill would extend the life of the trust fund beyond the 2035 insolvency date and, like the Sanders bill, expand benefits across the board and for people who need an extra boost.
Republicans in Congress have not supported legislation that would adjust the payroll cap. They would rather protect high earners from paying anything more into the system and instead focus on “reforms” that would ultimately reduce benefits. Despite agreeing in theory that Social Security is “off the table” in the debt ceiling debate, many Republicans have proposed to to raise the retirement age, means test benefits, adopt a more miserly COLA formula, or gamble part of the Social Security trust fund on Wall Street. We disagree with these proposals. 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.