Washington, D.C. — Another year, another increase in income inequality—a problem that will only accelerate as congressional Republicans’ new tax law takes effect. That’s bad news for the long-term outlook of Social Security. Today, an updated analysis from the Center for American Progress shows how, on the heels of historically unpopular tax cuts for the wealthiest Americans, rising inequality threatens the health of Social Security even as its modest benefits are more vital than ever.
A marker of this inequality is Valentine’s Day for millionaires, which falls on February 16 in 2018—the day when America’s last millionaire earners will stop contributing to Social Security for the entire year thanks to policymakers’ refusal to adjust Social Security’s payroll tax cap for rising top incomes. And while most working Americans continue to contribute all year long, multimillionaires and billionaires—including President Donald Trump’s Cabinet members and top donors and Trump himself—stop contributing even earlier.
The CAP analysis shows that in 2016, both President Trump and Treasury Secretary Steven Mnuchin stopped contributing to Social Security on January 1, with Trump finishing just 40 minutes into the new year. Other administration officials and donors—including Rex Tillerson, Gary Cohn, and Steve Wynn—also stopped contributing by January 3.
“It is time to expand Social Security, not cut it,” said Sen. Bernie Sanders (I-VT). “We can increase Social Security benefits for millions of Americans and extend the life of Social Security if we have the political will to tell the wealthiest Americans to pay the same rate as everyone else. This is not a radical idea. In fact, it is supported by the overwhelming majority of Americans, Democrats and Republicans alike.”
“Despite an economic forecast indicating that the income gap will continue to widen, the richest Americans are once again getting a gift while everyday workers pick up their slack,” said Rachel West, director of Poverty Research at CAP. “President Trump and House Speaker Paul Ryan (R-WI) are blatantly lying when they say America cannot afford critical programs such as Social Security, Medicaid, and Medicare, considering the tax windfall they just handed to millionaires on a silver platter. If they were really serious about expanding the middle class, these policymakers would be taking steps to curb rising inequality, raise the payroll tax cap, and strengthen—rather than cut—Social Security’s vital benefits.”
Rising inequality has taken a mounting toll on Social Security’s trust funds in recent decades, as stagnant wages for everyday workers have dampened payroll tax revenues, a growing share of earnings has exceeded the payroll tax cap, and earnings below the cap have become less equal. By refusing to raise the payroll tax cap—which currently stands at $128,400—to account for rising incomes for top earners, Trump and lawmakers are granting millionaire and billionaire earners an escape route from the taxes the rest of us pay all year long.
CAP’s new analysis shows that if the share of taxable earnings had been fixed at 90 percent of earnings since 1983, Social Security’s combined trust funds would have been $1.34 trillion greater at the end of 2016. Further, if workers’ wages had kept pace with productivity growth from 1983 to 2016, the combined trust funds would have had an additional $375.6 billion at the end of 2016.
To read the new analysis, click here.
For more information on this topic or to speak with an expert, please contact Kyle Epstein at [email protected] or 202.481.8137.