For Immediate Release: February 16, 2017
Washington D.C. – Today, individuals who make one million dollars will stop paying into Social Security. The maximum amount of earnings that can be taxed for Social Security in 2017 is $127,200, and millionaires just hit this cap. This means that those with the highest earnings in the US pay a lower rate than the vast majority of Americans, since 94.6 percent of workers have incomes below the cap.
An updated brief from the Center for Economic and Policy Research finds that raising this cap can play a crucial role to ensuring the long-term viability of Social Security. The Social Security Trust Fund currently holds $2.8 trillion, enough to pay full benefits through 2034. At this point, the fund will be able to pay just under 80 percent of full benefits for the next 75 years.
Removing or raising the cap would eliminate most future shortfalls in the Social Security Trust Fund. This ensures that high-income earners pay as much, or closer to, the same rate as everyone else and would expand retirement security for millions of workers. Since the payroll tax cap only applies to wage earnings and not to other forms of income like capital gains, raising the cap also addresses rising wage inequality.
The brief, “Who Pays if We Raise the Social Security Payroll Tax Cap”, shows how many people, and who specifically raising the cap would impact. The break down is below:
Roughly 1 in 18 people, or 5.4 percent of workers, earn more than the current cap and would be affected if it were eliminated
If workers who earn over $250,000 in wages paid the tax, the top 1.6 percent of workers would be affected
If the cap applied to people who earn over $400,000 in wages, only the top 0.7 percent would be affected
The brief also shows the impacts of eliminating or raising the Social Security payroll tax cap by race, gender, age, and state of residence. The effects vary widely, for example, about 1 in 53 black and Latino workers would pay more if the cap was completely scrapped and a little more than 1 in 35 women would pay additional taxes if the cap were eliminated.
Alan Barber, co-author of the brief, explains, “There have been significant legislative efforts to raise the cap, in the 114th Congress as well as through the reintroduction of similar bills this year. As more and more Americans struggle to prepare for retirement, we have to continue to look for ways to expand and strengthen Social Security.”