Teresa Ghilarducci explains in Forbes why we need to raise the cap on Social Security contributions. The Social Security cap means that the wealthiest Americans contribute only the tiniest fraction of their income–income representing less than a day of work–to the Social Security Trust Fund, while almost everyone else pays in throughout the year. President-elect Joe Biden supports raising the cap on Social Security. Will Congress?
Contributions to the Social Security Trust Fund are supposed to represent 12.4 percent of income. Generally, workers pay half of that and employers pay the other half. Self-employed workers pay the full amount.
But, there’s a limit to how much people must contribute. In 2021, the contribution is based on earned income up to $142,800. That’s a $5,100 increase from 2020. It should be more for wealthier people, as Congressman Larson and large numbers of Democrats in Congress are proposing in the Social Security 2100 Act.
More than nine in ten workers, 94.6 percent–about 160 million people–pay into Social Security throughout the year. But, 5.4 percent, about nine million workers, earn above $142,800. They do not pay in to Social Security for the full year.
Of the nine million people who earned above the Social Security cap, in 2019, 4,027 earned over $10 million. That works out to $2,397 every hour. These people will have paid into Social Security the full amount they owe on their first day of work.
Google’s CEO, Sundar Pichai, earns more than $280 million annually, largely in stock options. Intel Corporation’s Robert Swan earned $66,935,100 in one year. But, they pay into Social Security as if their incomes were $142,800. Mr. Pichai and Mr. Swan look to the Social Security Administration as people who earn just $142,800 a year.
The Social Security Trust Fund, unlike the Medicare Trust Fund, is in good shape for 12 more years. But, if Congress acted now to lift or remove the cap on Social Security payroll contributions, it would strengthen the Social Security Trust fund for many more years. It would enable Congress to expand Social Security benefits. Notably, there is no cap on Medicare Trust Fund contributions.
Without additional Social Security contributions, it is projected that the number of older adults living in poverty will nearly double in 12 years. About nine percent of older adults will be living in poverty in 2033, up from 4.8 percent.
Contributing more to Social Security should be of minimal consequence to the wealthiest Americans. As it is, Mr. Pichai gives way more to to charity each year than he would contribute to Social Security if Congress lifted the cap. More important, raising the Social Security cap would promote health and racial equity. It could also wipe out poverty among older Americans over the next 75 years.
President-elect Biden supports raising the Social Security cap. With any luck, a majority in Congress will as well.
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