For Immediate Release: January 24, 2013
Contact: Alan Barber, (202) 293-5380 x115
Washington DC – On January 1, the Social Security payroll tax cap rose from $110,100 in 2012 to $113,700. This meant that annual income up to $113,700 per year became subject to the 6.2 percent payroll tax but that the tax is not applicable to anything above that. A new issue brief from the Center for Economic and Policy Research demonstrates that the extension or elimination of the cap on the payroll tax would affect only a tiny fraction of workers while strengthening Social Security for all Americans.
The issue brief, “Raising the Social Security Payroll Tax Cap: How Many Workers Would Pay More?” finds that just the wealthiest 1 in 20 workers (the top 5.2 percent) would pay the Social Security tax on their annual income above $113,700 if the payroll tax cap were eliminated in its entirety and only 1 in 75 (the top 1.3 percent) workers would be affected if the cap were applied to yearly earnings over $250,000. In the current system, someone making twice the cap, or $227,400 per year, pays the Social Security tax on only half of their income and someone making $1.1 million per year only pays the tax on about a tenth of their income.
The authors go on to show that the share of workers who would pay more varies greatly according to gender, race and age. For instance, only 1 in 40 female workers would pay more if the cap were fully eliminated and 0.5 percent – 1 in 200 – would pay more if the tax were extended to income over $250,000. Only about 1 in 50 black and Latino workers would be affected if the cap were completely removed and less than one in 200 would be affected if the cap were raised to earnings over $250,000 per year. The brief also includes a state-level breakdown of the workers affected by raising the cap.
There have recently been several pieces of proposed legislation to raise or do away with the payroll tax cap. Sen. Bernie Sanders and Rep. Peter DeFazio have sponsored legislation that would raise the cap to income above $250,000 while Sen. Mark Begich and Rep. Ted Deutch’s proposal would fully eliminate the cap, with a small portion of earnings above the current cap going toward benefits. If enacted, proposals like these could almost entirely close Social Security’s projected long-term funding gap without reducing benefits nor increasing taxes on the vast majority of American workers.