•Press Release Health and Social Programs Inequality United States
Washington DC — The growing chasm between the rich and everyone else will have long-term consequences for the continued solvency of the Social Security trust fund if left unchecked. The Impact of Upward Redistribution on Social Security Solvency (2020 Update), published today by the Center for Economic and Policy Research (CEPR) explains how growing income inequality, combined with the Social Security payroll tax cap, reduces the program’s revenues over time.
“The payroll tax is the primary source of Social Security’s revenue, so the program suffers when more income shifts to those who make above the cap,” explain the coauthors Hayley Brown and Dean Baker.
When the payroll tax cap was last adjusted in 1983, it subjected 90 percent of covered earnings to the Social Security payroll tax, leaving only 10 percent of earnings over the cap. Thirty-five years later, just 83.1 percent of covered earnings were taxable, while the portion above the cap rose to 16.9 percent. The portion above the cap is projected to rise between 17.5 and 18.9 percent in the next decade.
“One obvious way to immediately strengthen Social Security is to raise the payroll tax cap to capture a larger share of covered earnings,” said coauthor Brown.
“To ensure Social Security’s future policy makers must act swiftly to prevent upward redistribution from continuing to undermine the program’s revenue,” says coauthor Baker.
