On February 18, millionaires in the US received a late Valentine. They stopped paying into Social Security for the rest of 2019 because they had hit the 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, Senator Bernie Sanders and Representative Peter DeFazio introduced the Social Security Expansion Act.
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.
The Social Security Expansion Act would increase monthly Social Security benefits. It would help low income retirees stay out of poverty, increasing their benefits. And, it would require wealthy Americans to pay their fair share into Social Security. In many ways, it is similar to the Social Security 2100 Act that Congressman Larson introduced earlier this year.
In 2019, Americans with wages over $132,900 stop contributing into Social Security. (In 2018, the cap was $128,400.) Consequently, the small fraction of people earning more than $132,900 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. 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.
Senator Sanders’ bill would require Americans to contribute into Social Security up to the annual threshold and again beginning at annual income, including unearned income, over $250,000.
Today, 16.6 percent of wage income is not subject to the Social Security tax. 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 $18,000. 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 proposes to change the formula for calculating benefits so that it is in line with expenses.
We are the wealthiest nation in the world at the wealthiest moment in our history. We can afford to expand Social Security and increase Social Security benefits for low and moderate workers. Senator Sanders bill is estimated to keep the Social Security Trust Fund strong for another 50 years.
Co-sponsors of the Sanders bill include Senators Kirsten Gillibrand (NY), Jeff Merkley (OR) and Cory Booker (NJ).
Check out this calculator from the Center on Economic and Policy Rights to see the last day millionaires are subject to Social Security taxes.
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