One way to fix Social Security’s long-term financing is to stop exempting high-earning workers from Social Security taxes on the majority of their income. Thanks to new research from the Center for Economic and Policy Research (CEPR), we now know just who would be affected by the elimination of that exemption: less than 6 percent of all workers.
Current tax laws exempt every dollar a person earns above $117,000 from payroll taxes to finance Social Security. That cap means that the 900 richest people in the country stopped paying into the program after the first two days of 2014. Those most able to chip into the country’s retirement security system won’t do so again until the calendar flips to 2015. As CEPR notes, the cap means that “workers who make $117,000 or less per year pay a higher Social Security payroll tax rate than those who make more.”
Eliminating the cap would almost entirely close Social Security’s funding gap for the next 75 years. Roughly just one in every 18 workers would see their tax burden increase, according to CEPR’s figures. One in 36 working women and one in 50 black and latino workers would pay more under that proposal, compared to about one in 12 men, one in 14 white people, and one white man out of every 10.
An alternative proposal to outright eliminate the cap is to continue exempting income between $117,000 and $250,000 from the tax, but apply Social Security taxes to all income above a quarter-million dollars per year. Such an approach slashes the proportion of the workforce affected even further: just 1.4 percent of workers would pay more, with just one in 33 white men and one in 250 black people seeing their tax burdens rise. The mixed approach would close the long-term funding gap in Social Security by about 80 percent.
Taxing a vanishingly small fraction of the workforce slightly more would strengthen the retirement security of the entire country at a time when millions of people are at risk of sliding into poverty in their golden years. The gap between what Americans have saved for retirement and what they would need to maintain their lifestyles in those years stands at nearly $7 trillion. Traditional pension plans have been replaced by personal investment account systems that fleece workers, require no contribution from employers, and hide their fee structures in an impenetrable forest of jargon and paperwork. And that’s for the lucky half of working America that even has access to a retirement savings account through work. Over a third of all workers have less than $1,000 set aside for retirement, and two out of three have less than $25,000 saved.