Social Security gives retirement, disability, and survivor benefits to almost 20 percent of the US population, including at least six million children. But it could do better.
Social Security contributions are capped at the first $137,700 of wage income per year, meaning that someone who makes $1,000,000 per year stops paying into the program on February 19, 2020.
That makes a millionaire’s effective tax rate well below the 6.2 percent of income that most Americans pay. Instead, it is less than 1 percent of a millionaire’s income. The Social Security tax is only levied on wages, excluding income from other sources like capital gains, meaning those with wages over the cap likely have an effective tax rate even lower than this estimate. The burden of Social Security taxes falls more heavily on those who make less.
The Social Security fund is projected to have a shortfall in the coming years and a large share of the missing funds is due to the shift in income above the $137,700 cap. In 1983, 10 percent of wage income was above the cap, in 2016 more than 17 percent was. This upward redistribution represents a large share of the shortfall.
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 as necessary as ever.
Our calculator below lets you see for yourself when people with various wage incomes stop paying into Social Security.
Some non-millionaire salaries which might be interesting to enter are: