Wealthy Americans pay much less into Social Security as a proportion of their earned income than middle-income Americans. Indeed, millionaires contribute only a tiny fraction of their annual earned income to Social Security; they pay into Social Security just a few weeks a year. The Center for Economic and Policy Research has developed a calculator to show how relatively little wealthy people contribute.
People who make $1,000,000 a year stopped paying into Social Security on Valentine’s Day, February 14, 2016–just six weeks into the calendar year. Only 11.9 percent of their annual income is subject to the Social Security tax. And, their effective Social Security tax rate is just 0.7 percent.
In sharp contrast, the overwhelming majority of people in the United States, make under the Social Security cap of $118,500 and contribute into Social Security throughout the entire year. The full amount of their income is subject to the Social Security tax. And, their effective tax rate is 6.2 percent.
If millionaires contributed the same proportion of their earned income to Social Security as people earning $118,500 and less, they would be paying $54,653 more than the $7,347 they currently pay. And, it would be one way to strengthen and expand Social Security.
People with lower incomes don’t only pay a higher percent of their earned income into Social Security than wealthy people. If they claim Social Security benefits early, it disproportionately hurts them. And, did you know that hundreds of thousands of people receiving Social Security benefits are still paying back student loans?
To learn how income inequality in America has meant less money for Social Security, read Teresa Ghilarducci’s post on Just Care here. And, Nancy Altman writes on Just Care about why it’s time for people receiving Social Security to get a raise here.