CEPR’s calculator lets you see for yourself when people with various wage incomes stop paying into Social Security.
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Most of us pay income and payroll taxes on all of our earnings, all year round. But only two months into 2023, millionaires have stopped paying Social Security taxes for the year.
Social Security provides one in six Americans with retirement, disability, and survivor benefits, including 13 million children with a deceased, formerly wage-earning parent. Social Security is financed by a 6.2 percent payroll tax paid by workers and an additional 6.2 percent paid by employers. In 2023, the tax only applies to the first $160,200 of earnings. That means someone whose paycheck is $83,333 a month—and $1,000,000 over the year—stops contributing to Social Security on February 28, 2023.
The vast majority of workers are paid less than $160,200 per year, so they pay the 6.2 percent social security payroll tax on all of the paychecks they receive in 2023. But workers who earn over $160,200 pay no tax on their earnings above this level. For a millionaire only about 1 percent or less of their total earnings go to supporting Social Security. Despite earning much more than the average worker, a millionaire’s effective tax rate is far lower than the average worker’s. As a result, the burden of supporting Social Security falls most heavily on working-class and middle-class people.
The Social Security Trust Fund is projected to fall short of the amount needed to continue paying full benefits in coming years. This is largely due to increasing income inequality. When the payroll tax cap was implemented in 1983 only 10 percent of earnings exceeded it and went untaxed. But by 2021, the amount of earnings above the cap had grown to 18.6 percent. Continued upward income redistribution has shifted more earnings out of range of the program’s supporting tax.
Scrapping the payroll tax cap entirely and making everyone pay the same tax rate, along with moderate changes, would close the current projected shortfall and allow for expansions that improve Social Security’s adequacy and inclusiveness.