RELEASE: Center for American Progress, Sen. Bob Casey: Income Inequality Has Cost Social Security Trust Funds More Than $1 Trillion Over Past Three Decades
New CAP Issue Brief: Rising Inequality Has Hurt Solvency of Trust Funds, Put American Families at Risk
Washington, D.C. — A new analysis from the Center for American Progress demonstrates the extent to which rising income inequality has impacted the solvency of the Social Security trust funds and poses a threat to their long-term financial health. The analysis reveals that stagnant and declining wages for working families and the upward redistribution of income have taken a substantial toll on the Social Security trust funds. CAP Executive Vice President for Policy Carmel Martin and Sen. Bob Casey (D-PA), a member of the Senate Finance Committee, discussed the findings on a news conference call today.
Specifically, CAP’s issue brief finds that the trust funds would be $753.8 billion larger had the average worker’s wages kept pace with productivity growth between 1983 and 2013, thereby reducing the expected 75-year shortfall of the trust funds by 6.8 percent. The brief also shows that the trust funds would be greater by more than $1.1 trillion had the maximum taxable wage base remained fixed at 90 percent of earnings over the same time period, reducing the expected 75-year shortfall by 10.1 percent. Both scenarios would have added years of additional solvency to the Social Security trust funds. These findings come on top of Social Security trustees’ projections that, looking ahead, freezing the taxable wage base at 90 percent today would on its own close more than one-quarter of the projected 75-year shortfall.
“Rising income inequality is the defining challenge of our time. While those at the top of the income ladder have seen tremendous gains, most Americans have watched their wages stagnate or even decline amid rising costs. Now we know that inequality also poses a significant threat to our nation’s Social Security system,” said Martin. “Rather than seeking to take apart our Social Security system brick by brick, conservatives in Congress should work with progressives to enact policies that raise wages, combat inequality, and grow the economy from the middle out.”
“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 and help create a more fair economic environment for middle class families.”
“For low-income seniors, Social Security represents nearly 85 percent of income. Even for seniors right in the middle, Social Security represents nearly two-thirds of their retirement income. That’s why we must do everything possible to protect and expand social insurance,” added Sen. Sherrod Brown (D-OH), ranking member of the Senate Finance Committee’s Subcommittee on Social Security, Pensions, and Family Policy. “As today’s brief demonstrates, the growing income inequality that hurts today’s workers also holds severe implications for Social Security’s future. This threat to the retirement security of millions of Americans must be a call to action for Congress to increase the minimum wage, enact economic policy that will increase middle-class earnings, and broaden the taxable base that funds Social Security. If we fail to address income inequality in a meaningful way, we fail not just today’s workers but also millions of Americans who have earned Social Security benefits.”
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.
The brief concludes that congressional policymakers should take action to improve Social Security’s fiscal outlook by implementing policies that boost wages, combat rising inequality, and modernize Social Security’s revenue structure to reflect the modern economy.
Click here to read “The Effect of Rising Inequality on Social Security” by Rebecca Vallas, Christian E. Weller, Rachel West, and Jackie Odum.
To schedule an interview with Sen. Casey, contact John Rizzo at John_Rizzo@casey.senate.gov or 202.228.6367.
To schedule an interview with Carmel Martin or other CAP experts, contact Allison Preiss at firstname.lastname@example.org or 202.478.6331.