Washington, DC- Today, Senator Bob Casey (D-PA), a member of the Senate Finance Committee, along with Center for American Progress Executive Vice President for Policy Carmel Martin, unveiled a new CAP analysis showing how rising income inequality has jeopardized the solvency of the Social Security trust funds and poses a threat to their long-term financial health. Senator Casey and Ms. Martin discussed the findings of CAP’s new issue brief, which revealed how much larger the trust funds would be had the average worker’s wages kept pace with productivity gains over the past three decades.
“Social Security is one of the core foundations of our middle class, providing much-needed earned benefits and peace of mind to working families who have paid into the system. It is imperative that we ensure the long-term solvency of this essential program,” Senator Casey said. “This report highlights the challenge income inequality presents for our Social Security system, and underscores the importance of policies that boost wages and help create a more fair economic environment for middle class families.”
CAP’s brief outlines how, as a result of the cap on taxable earnings—$118,500 for 2015—Social Security’s funding is tied directly to the full wages that low- and middle-income workers earn—but not to the full wages that higher-earning workers receive. The brief finds that in 2013, the top 1 percent of earners took home nearly the same share of the nation’s total wage income as the entire bottom half of workers. As a result, income has shifted away from workers whose full earnings are subject to payroll taxes and toward high-income workers whose additional dollars are exempt.
The brief also finds that with the rise of income inequality over the past three decades, a growing share of wage income now escapes taxation for Social Security. Whereas in 1983, 90 percent of wages were subject to payroll taxes, that number has dropped to 83 percent today. As a result, millionaire and billionaire earners stop contributing payroll taxes early in the year. CAP’s brief finds that in 2015, earners with $1,000,000 in wages stop contributing to Social Security on February 12, while the average worker contributes all year long.
Click here to read “The Effect of Rising Inequality on Social Security” by Rebecca Vallas, Christian E. Weller, Rachel West, and Jackie Odum.