JustCare

Tag: Payroll

  • 2023: Congress should scrap the Social Security cap

    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.

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  • Congress should eliminate the cap on Social Security contributions in 2023

    Congress should eliminate the cap on Social Security contributions in 2023

    In an opinion piece for Bloomberg News, Teresa Ghilarducci explains why Congress should eliminate the payroll contribution cap on Social Security. The current cap is $160,200, which means that at least 500 Americans make their full contribution to Social Security in the first few days of this year. Most Americans, however, contribute to Social Security throughout the year.

    If Congress lifted the cap on Social Security, not only would it be fairer, but it would strengthen the Social Security Trust Fund significantly. The people who make their full contribution to Social Security in the first days of January can well afford to continue to contribute. They represent only five percent of the population.

    How do Social Security contributions work? They are generally split between employers and workers. Each contributes 6.2 percent of their income up to $160,200 in 2023. But, that payroll contribution is not as large as it once was because the 12.4 percent of income contribution does not include non-taxed benefits like health insurance. And, over the last several decades these non-taxed benefits have risen faster than wages.

    At this moment, Social Security has enough money in its Trust Fund to pay full benefits until 2033. And, it has never not been able to pay full benefits. But, to keep Social Security paying full benefits, Congress must act.

    Congress could increase contributions from 12.4 percent to 15.87 percent, a contribution increase of about 1.75 percent for employers and employees, to keep Social Security able to pay benefits for the next 75 years. But, that would be a very heavy and unlikely political lift.

    It would be much easier for Congress to eliminate or raise the cap on Social Security contributions. According to the Congressional Research Service, if it eliminated the cap, the Social Security Trust Fund would be able to pay full benefits for 35 additional years.

    Requiring all Americans to pay into Social Security for the entire year would affect just five percent of the population and would add $150 billion to Social Security’s Trust Fund. Of note, Medicare does not have an income cap.

    Older Americans rely heavily on Social Security. More than six in ten depend on Social Security for at least half of their monthly income. One in three of them depend on Social Security for 90 percent of their income. Congress must help protect them and eliminate the cap on Social Security contributions.

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  • Coronavirus: Trump demands Social Security cut in next stimulus bill

    Coronavirus: Trump demands Social Security cut in next stimulus bill

    Jake Johnson writes for Common Dreams about Trump’s plan to cut Social Security and Medicare. He is privately warning Republican members of Congress that he will not sign off on any new COVID-19 legislation that do not include cutting Social Security and Medicare payroll contributions. Republicans in the US US House of Representatives and Senate have signaled that they will do Trump’s bidding.

    Nancy Altman, president of Social Security Works, explains that Trump and his fellow Republicans are “hostage-taking.” They are refusing to act to address the horrifying conditions in the US–the evictions that millions of Americans are facing, the lack of COVID-19 testing, the dearth of personal protective equipment for health care workers, the 57,000 nursing home deaths–unless Congress weakens Social Security.

    Moreover, by the end of this week, 30 million Americans will lose the $600 a week additional unemployment benefit they received as a result of an earlier stimulus bill if Congress does not act immediately.

    To be clear, the Republicans’ proposed cut in the payroll tax is of no benefit to people who are unemployed. And, it will be of little benefit to people whose hours of work have been reduced. The tax is only paid by working people. And, a cut is of little value in boosting the economy, now in a deep recession.  Still, Trump said back in April that he “would love to see a payroll tax cut,” and “there are many people who would like to see it as a permanent tax cut.”

    Of note, a payroll tax cut would be a huge windfall to employers, particularly the biggest employers in the US. Employers match people’s payroll contributions dollar for dollar. Senate and House Democrats oppose a payroll tax cut.

    Because Senate Republicans are insisting on a payroll tax cut as part of the next stimulus legislation, it’s not at all clear that more stimulus money will pass in Congress. It is one of many big sticking points between Democrats and Republicans. Democrats also oppose protections from liability that Republicans want to give businesses. Other issues where there is not yet a meeting of the minds include whether Congress will continue to expand people’s unemployment benefits, how much aid cities and states will get, and the amount that Congress will give to support education.

    Update: Both the House and Senate Republicans are including provisions of The Trust Act, which allows Republicans to slash Social Security behind closed doors and quickly, in their stimulus legislation.

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