Today is the first day of 2021 that millionaires make no contribution to Social Security.
Social Security gives retirement, disability, and survivor benefits to almost one-in-five Americans every year, many of whom are children. However, contributions to the program are capped to the first $142,800 of wage income per year. This means that someone who earns $1,000,000 in 2021 stops contributing to the program on February 23.
The burden of supporting Social Security falls more heavily on those who make less.
Most people make less than $142,800 per year, so they pay the 6.2 percent payroll tax on every paycheck in 2021. But those who make more than $142,800 don’t have to pay into the program once they hit that cap. That makes their effective tax rate lower than everyone else’s; for a millionaire it’s not even one percent of their income. The burden of supporting Social Security falls more heavily on those who make less.
Despite the importance of the program, the Social Security Trust Fund is projected to have a shortfall in coming years, due largely to increasing income inequality. In 1983, 10 percent of wage income was above the cap, in 2018 almost 17 percent was. This upward redistribution has shifted income out of range of the program’s supporting revenue stream.
Scrapping the payroll tax cap entirely and making everyone pay the same tax rate, together with modest changes to the program, could eliminate the shortfall entirely and allow for expanding benefits, which are increasingly necessary to support American workers.
CEPR’s calculator below lets you see for yourself when people with various wage incomes stop paying into Social Security.
Some other salaries which might be interesting to enter are:
- $31,133 – the median income for an individual
- $814,909 – the 2018 salary of Bill Magness, CEO of the non-profit Electric Reliability Council of Texas
- $1,100,000 – the salary (excluding bonuses and stock options) of Game Stop CEO George Sherman, whose company narrowly avoided bankruptcy earlier this year.