Here’s the Place to Start Strengthening Social Security Funding and Benefits
Shannon Benton, Executive Director
Can we strengthen Social Security’s financing in such a way that we can also provide a modest boost in benefits? According to the latest Social Security Trust fund baseline from the Congressional Budget Office, Social Security will pay out more than it receives in payroll taxes and other revenues, this year and all years going forward, until the program becomes insolvent in 2034.
How should Congress fix the problem? TSCL Senior Surveys have found wide support for raising the amount of earnings subject to the 12.4% payroll tax from the maximum level that is set every year (currently $142,800 in 2021). Raising the taxable maximum wage base could go a long way towards eliminating the Social Security financing deficit or providing an extra boost to benefits, according to estimates from the Social Security Chief actuary, resolving as much as two thirds of the long-term deficit.
Consider, for example, Tim Cook the CEO of Apple (computers and iPhones). According to the most recent public company documents, Mr. Cook received about $13,731,000 in compensation in 2020. Mr. Cook and Apple paid a total of $17,075 in payroll taxes — exactly the same amount as employees making $137,700. That was the maximum taxable wage amount in 2020. So how much would Tim Cook and Apple have paid if all earnings were taxable? According to our calculations, $1,702,644.
To put that in context, the average Social Security retirement benefit in 2021 is just $1,543 a month. If payroll taxes were applied to Cook’s full compensation, the $1,702,644 of payroll taxes would provide full benefits to more than 90 retirees with average benefits for an entire year. Or his payroll taxes could provide a $30 per month boost for more than 4,729 retirees for a year.
How many people are earning more than the taxable wage base? According to a report from the Congressional Research Service, about 10.2 million individuals earned more than the taxable earnings base in 2017. Of that group, 7.4 million were men; the rest were women. The Congressional Budget Office points out that the question is not just the number of people that’s important, but the overall percentage of earnings that are taxable. Over the past decade, earnings for the highest-paid workers have grown faster than pay for average earners. Thus, receipts from Social Security payroll taxes are falling because the share of earnings above the maximum taxable amount is growing.
And let’s consider how well the Social Security cost-of-living adjustment (COLA) met rising costs in 2021. Not so well, according to those of you who have taken our 2021 Senior Survey. The Social Security COLA that retirees received this year increased benefits by just 1.3%. That boosted an average benefit of $1,523 per month by just $20. But when we asked how much your total monthly expenses increased in 2020, only 15% of survey participants said that monthly expenses increased by less than $20!
Eighty-five percent of participants in our latest Senior Survey confirm that household expenses increased by more than $20 per month. Even worse, 41% of that group say that expenses rose by $120 per month or more. The 2021 COLA didn’t even come close! These results illustrate why retirees need a boost to their Social Security benefits and a COLA that more fairly keeps up with rising costs.
TSCL is working closely with Members of Congress to get legislation re-introduced that would boost benefits for all and increase the maximum amount of wages taxable for Social Security.