Most people pay a Social Security tax of 6.2 percent on their income throughout the year, on every dollar they earn. But the top 1 percent of working Americans are only taxed during the first six weeks of the year, on a small portion of what they earn. They pay the Social Security tax only on the first $118,500 of income, the amount at which Social Security payments are capped.
That means from this week forward, they are enjoying a payroll tax holiday that lasts through the rest of the year. Is that fair?
Today the Social Security trust fund has about $2.8 trillion. But, by 2033, if nothing is done to increase the amount of money in the trust fund, it will have spent down its assets and will only be able to pay about 75 percent of scheduled benefits. As it is, U.S. benefits are already stingy as compared with those of other wealthy countries.
According to the Center for Economic Policy and Research (CEPR), one driver of this future shortfall in the Social Security trust fund is the dramatic widening of income gaps in the last three decades. The people earning the highest incomes have seen faster wage increases than other workers. Consequently, more income is escaping tax than originally projected, and the Social Security trust fund has collected less revenue than needed.