By Sarah Rawlins
Feb. 23 was the first day of 2021 that millionaires made no contribution to Social Security.
Social Security gives retirement, disability, and survivor benefits to almost 1-in-5 Americans every year, many of whom are children. However, contributions to the program are capped to the first $142,800 of wage income per year. This means that someone who earns $1,000,000 in 2021 stops contributing to the program in late February.
Most people make less than $142,800 per year, so they pay the 6.2 percent payroll tax on every paycheck in 2021. But those who make more than $142,800 don’t have to pay into the program once they hit that cap. That makes their effective tax rate lower than everyone else’s; for a millionaire it’s not even 1 percent of their income. The burden of supporting Social Security falls more heavily on those who make less.
Despite the importance of the program, the Social Security Trust Fund is projected to have a shortfall in coming years, due largely to increasing income inequality. In 1983, 10 percent of wage income was above the cap, in 2018 almost 17 percent was. This upward redistribution has shifted income out of range of the program’s supporting revenue stream.
Scrapping the payroll tax cap entirely and making everyone pay the same tax rate, together with modest changes to the program, could eliminate the shortfall entirely and allow for expanding benefits, which are increasingly necessary to support American workers.
Sarah Rawlins is a program associate at the Center for Economic and Policy Research in Washington, D.C.
This article is from Common Dreams.
The views expressed are solely those of the authors and may or may not reflect those of Consortium News.
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I think it is obvious most proletariat are not aware of this “cap” If they were they might even ask their “elected officials” to address it. But like so many policies and practices if you are not informed no one will do anything about it.
I think it very unfair, and yes it should be rectified.
How strange. You would think that it would be the other way round; you would only start paying after earnings reach a minimum threshold.
That would be the honest, true and socially just way, but such does not exist hereabouts. And even more so when not a few Congressionals, White House Folks are among those who barely pay a cent into Soc Sec funds ‘cos they are well in the Millionaire class and they’ll get a very nice pension (taxpayer, i.e. us, funded) …both faces of the Janus Party…And if I recall right, it was under the Clintonian period that the Soc Sec fund was raided to pay for other things (bombs?)…
Another misleading and false argument about the state of Social Security. In reality, the FICA tax is 100% regressive and no one should be having to pay this tax. The federal government, being monetarily sovereign, has an infinite supply of money and does not need or use tax revenue to pay for anything. The trust fund is a myth, numbers on a balance sheet that mean nothing. Congress can change the law allowing the federal government to pay for all social security benefits and abolish the FICA tax altogether. Just like the mythical National Debt, the government collects taxes to maintain the wealth gap and to fulfill an archaic law instituted by Roosevelt to make it look as if the middle class and poor are paying their fare share of retirement. Due to the US being a monetarily sovereign nation, congress by law has the ability to pay for social security and anything else ad hoc, not borrowing a penny from anyone and certainly not needing tax revenue to fund it! Learn the truth about how our economic system actually works and reject the “big lie” regarding deficits, national debt, healthcare, education and the like. Your federal tax dollars are destroyed by the government upon receipt. Why would they need tax dollars to pay for anything when they create money at will? They don’t!
This is probably why there is a big push to privatize Social Security. Power knows it can’t be properly funded for the future, since they have managed to claim a bigger share of the wealth, and also to evade taxes on that wealth.
Scary…we badly need improvement in our lives, and powerful people are determined to prevent this.
Why can’t there be an ongoing but slowly diminishing (of course) Social Security tax for each extra dollar somebody makes? That could add up to a lot of security funds given how much the “top” makes. They need to give up a fair share of the wealth they get – much of which, lets be honest, is on the backs of the proletariat.
Moreover and maybe more importantly, why does there need to be a cap? It is ridiculously unfair, and even those making all the money know this and that is why they feel compelled sometimes to become……what is that word……to setup charities and such……..I think all of that ain’t nothing but a big racket and I’m tired of philanthropy. Like I said – it is a racket. Time to start breaking stuff up like that. Stuff that obviously is unfair. But, the first step is to break up some of the corporations that let me tell are NOT alive. Facebook should go first and then Google. In that order.
Will there never be any justice? I know the answer and you might not want to hear it, so I won’t say it, but I know. I know also that I’m not alone in knowing this. I know that some other know what I know and they know I know about what they know. Know what I mean?
I have no expectation that either of the 2 parties in DC will do a thing to change this, but I have an expectation that this is going to change and I think it is going to happen much more rapidly then anybody is expecting. I also know that I have a lot of faith in the 1st Amendment, the one dealing with “free speech”, and I know I’m not alone. Good things are on the way and it is gonna be fun and joyful. It will be better.
Thanks for this article and peace to you.
I can relate to your I know,If I knew then what I know now,no one could stand me.
I’m not going to tell you what I know,because
then you’ll be as smart as me. Neither gets you anywhere.
What’s your game Maura? Honestly, but thanks for appreciating the 3rd paragraph out of 5 when I was just trying to add a bit of levity to the discussion.
But if you want to get serious, then here is what I think:
1. Every dollar you make after a certain threshold, you should give back a bit for social security for the benefit of the community.
2. The percentage given shouldn’t even commence until the money earned has gotten past poverty. Cause think about that – it makes no sense to force the poor to kick into such an unfair social security safety net that really is not working for the benefit of any of us except those few making so much more than I think they are worth – I think, in fact I know, I’m not alone in this sentiment.
3. I’ve decided I was wrong about slowly diminishing the tax rate. In fact, after consideration, I think it should slowly increase as one makes more money.
4. If you are making so much money you don’t know what to do with it, then why not give some back to help out the proletariat upon whose backs most of the money you made has been created in the first place.
You see Maura, I don’t think any of them are as smart as they think they are. I also fiat currency, which is based on nothing but good faith, is seriously limited, and the limit has been reached. That is recipe for insurrection – the type of insurrection that leaves no doubt as to its meaning.
2021 – Year of Reckoning
How interesting. A completely unfair and inexplicable bonus for the rich, who use the roads and other infrastructure (such as it is!) in the USA plus the wonderful “defense” from evil invaders paid for by the “defense budget”, yet pay only a tiny proportion of their income because the laws made by our “representatives” are so arranged to ensure they are rewarded just for being rich and influential.
If the cap was raised the resulting benefits would have to be higher,too.
The low wages earners are getting more the way indexing formula is used.
You’re right about Congress amending the current structure.1987 or so last changes were passed.
Benefit amount will also increase..$$$$$$… also aging longevity factor must be considered. As it stands now with indexed formula,beneficiaries who contributed low earnings get
a better return on their contributions. Disability trust fund is getting more of a question of running out.