2023: Congress should scrap the Social Security cap

Today, people earning $1,000,000 this year received a late Valentine. They stopped paying into Social Security for the rest of 2023 because they had hit the $160,200 cap on payroll contributions, even though the vast majority of working Americans pay in to Social Security throughout the year. To bring fairness to Social Security payroll contributions, it’s time to scrap the cap.

Social Security is the most successful government program in history, with overwhelming support from Democrats and Republicans alike. A 2017 Pew Research Center poll found that 86% of Republicans and 95% of Democrats supported keeping or increasing current spending on Social Security.

In 2023, Americans with wages over $160,200 stop contributing into Social Security after they earn $160,200. (In 2022, the cap was $147,000.) Consequently, the small fraction of people earning more than $160,200 pay a lower tax rate for Social Security than everyone else. Someone earning $1 million a year pays an effective Social Security tax rate of only 0.8 percent as compared to most Americans who pay a Social Security tax rate of 6.2 percent.

Today, more than nine out of ten Americans (94 percent) contribute all year long into Social Security. They bear a greater burden for contributing to Social Security than millionaires. Bottom line, everyone earning $160,200 and more makes the same Social Security contribution of $9,932 this year.

If the wealthiest Americans contributed to Social Security throughout the year, just as other Americans, the Social Security Trust Funds would have $1.4 trillion more. Someone earning $5,000,000 this year would contribute $300,067.60 instead of $9,932.

N.B. Social Security contributions are based on wage income. So, unless Congress were to change it to include unearned income, people with total earnings of $20,000,000, such as the CEOs of UnitedHealthcare, Centene and Cigna, still would not contribute their fair share, $1,230,067.60, since most of their income is not wage income.

More than 18 percent of wage income is projected to not be subject to the Social Security tax over the next ten years. In 1983, 10 percent of wage income was not subject to the tax. As the gap between wealthy and poor has grown in the US, more income of the wealthy has been shielded from the Social Security tax.

Social Security is a lifeline for most retirees and their families, providing critical retirement security, an average annual benefit of $21,924. It currently replaces about 40 percent of people’s pre-retirement income. Social Security’s importance is all the greater today as a retirement crisis looms. But, Social Security benefits have been shrinking relative to earnings.

Social Security benefits increase with inflation overall. But inflationary adjustments have not kept up with the rise in health care costs facing retirees and others receiving Social Security benefits. Economist Dean Baker has proposed changing the formula for calculating benefits so that it is in line with expenses.

We are the wealthiest nation in the world. We can afford to expand Social Security and increase Social Security benefits for low- and moderate-income workers. Eliminating the payroll tax cap so that everyone pays the same rate would extend the solvency of the Social Security Trust Fund significantly.

This calculator from the Center for Economic and Policy Research allows you to see when people with different incomes stop paying into Social Security.

Here’s more from Just Care:

• Expand Social Security, don’t means test it
• Advocates launch pledge campaign to protect Social Security and Medicare
• Congress should eliminate the cap on Social Security contributions in 2023
• Poll: More than 75 percent of Americans support strengthening Social Security
• Retirement Reboot: What you should know and how to plan ahead