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Home Publications Blogs CEPR Blog How Old Will Social Security Be When the Rich Pay the Same Rate as the Rest of Us?

How Old Will Social Security Be When the Rich Pay the Same Rate as the Rest of Us?

Written by Nicole Woo   
Thursday, 14 August 2014 12:35

Today is Social Security's 79th birthday, a good time to celebrate the nation's most effective anti-poverty program, which, especially after the housing crash and Great Recession, is crucial to the retirement security of middle- and working-class Americans.

But in about 20 years, Social Security will likely be able to pay only about 3/4 of promised benefits to retirees (if nothing's done to change the program). One way to make sure that this drop doesn't happen is to have our nation's wealthiest folks pay the same Social Security payroll tax rate as the rest of us.

Social Security is mostly funded by payroll taxes, paid by workers like you and me. Many people don't know that this tax doesn't apply to income over $117,000 per year (adjusted for inflation annually). In other words, a corporate executive making $1.2 million dollars per year pays less than 1/10th the payroll tax rate as the 94 percent of us who make under $117,000 per year.

Several members of Congress have proposed different ways to make the system more fair by having the wealthy pay the same, or at least closer to the same, payroll tax rates as the vast majority of American workers. Earlier today, Representative John B. Larson released details about the newest of these plans.

Mr. Larson's proposal has several different parts that combine to strengthen both the finances of Social Security and benefits for retirees. Applying the Social Security payroll tax to income over $400,000 per year is one part, and according to the Chief Actuary of Social Security, it would, on its own, eliminate 2/3 of the program's projected 75-year shortfall.

To get a sense of how few people would be affected by this part of this plan, take a look at the chart below. My colleagues here at CEPR have run the numbers, and only the richest 1 in 200 American workers make over $400,000 per year.

When you look at different demographic groups, the picture becomes even more stark. Less than 1 in 500 women make more than $400,000 per year. And only 1 in 1000 black workers earn above that threshold.

Workers who earn $400,000 and above

Let's remember that by raising the cap on Social Security payroll taxes, Mr. Larson's plan and similar proposals aren't asking the rich to pay a higher tax rate than middle-class Americans. Instead, they're simply asking the wealthiest among us to pay the same (or almost the same) rate as the 94 percent.

Which leads to the question: How old will Social Security be when the richest Americans pay the same payroll tax rate as the rest of us?

Comments (3)Add Comment
written by foosion, August 14, 2014 2:34
When Social Security was tweaked by the Greenspan Commission in 1983 they made various economic predictions, including life expectancy, costs and tax revenue needed to sustain Social Security (they decided to use 90% of national income as the base to tax and set the Social Security cap based on that). Their predictions have all turned out to be accurate, other than the income cap. Due to increasing inequality, the cap no longer applies to 90% of income (more than expected is earned by those making over $117,000). Resetting the cap to work as intended would essentially solve any funding shortfall.

A while back, Jared Bernstein posted the relevant materials regarding 90% on his blog in response to a question I asked.
written by coberly, August 15, 2014 3:49
I am sorry to see this.

Roosevelt made sure that Social Security was "worker paid" because he understood the politics of the United States. That politics includes the fact that workers like to be able to say "i paid for it myself," and if you tax the rich to pay for it they will destroy it.

Increasing the tax on people making 400,000 per year would increase their tax up to 48,000 dollars per year. They will notice that, and they will do something about it. And you would only have paid for 2/3 of the "shortfall."

Increasing the tax on people currently under the cap by 80 cents per week (40 dollars per year) each year will eliminate the shortfall entirely, AND the workers will get their money back when they retire. The ultimate tax increase for the average worker would be about a thousand dollars a year in a year too far away to think about. And they would still get their money back.

It is a very peculiar thing that you would call for a tax increase because "it would affect only a few people." Since when do Americans want to live on the charity of the rich? Since when does democracy mean "screw them, there are only a few of them"?

You can't understand this, but calling for "tax the rich" is exactly what Peter Peterson has been saying you'd do. That's why he is calling for cutting benefits if not killing the program outright.

You can pay for your own retirement, just as your parents and grandparents always have. SS will protect your savings from inflation and market loss, and insure you from personal bad luck, and pay a reasonable interest. That's all you need., Get greedy and you will lose the whole thing. SS is the best deal workers have ever had, they don't need to have it destroyed by a "left" that can't think of anything but "tax the rich." Roosevelt knew better than that.
written by watermelonpunch, August 18, 2014 12:57
Poor people are forced to gamble more than higher income earners. (It's a gamble because you only get that money back if you actually live to retirement. And if you're giving a bigger percentage, you're gambling with more.) Which is interesting, because poor people are more likely to die sooner, aren't they?

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