Middle Income Americans Play Disproportionate Role In Financing Social Security.
By Shannon Benton, Executive Director
Meet Leonard S. Schleifer, the CEO of Regeneron Pharmaceuticals. If that company name sounds familiar — it should. Regeneron is the maker of a monoclonal antibody cocktail that’s used in the treatment of COVID-19 patients.
When Schleifer started his first workday of 2020 at 9AM, he met his Social Security payroll tax obligation for the entire year by 11:07 AM! After just 2 hours and 7 minutes of work, he paid no further Social Security taxes on the balance of his earnings — all $135,212,421 of it. For Mr. Schleifer, 2020 was a fantastic year! His total compensation in fiscal year 2020 was $135,350,121.
Based on the way the U.S. tax code is designed, the higher the income one has, the more one usually has to pay. But that’s not how Congress designed Social Security’s financing structure. The 12.4% Social Security payroll tax applies to the first dollar of earnings — but only up to a certain taxable maximum, which was $137,700 in 2020 and after adjustment for inflation, is $147,000 in 2022. After reaching the taxable maximum, neither workers or their employers pay anything more in Social Security taxes — no matter how much they earn.
But the same is not true for the vast majority of U.S. workers who pay Social Security taxes on 100% of their earnings—every single dollar they earn. According to the U.S. Census Bureau, the median (middle) household income in 2020 was $67,521, well below the $137,700 taxable maximum that year. According to the Social Security Administration, 6% of workers have earnings above the taxable maximum, and almost 20% of current and future workers are projected to have earnings above the taxable maximum in at least one year.
Now, meet John and Jane Doe who are over the age of 65. In 2019, they had an income of $54,796 — roughly the national median income for a married couple their age. During their working years, they both paid Social Security taxes on every dollar they earned. And while they worked hard and have some savings, they worry that it may not be enough to last through a 25-year retirement.
Many of the high costs of Medicare came as a surprise to John and Jane after getting good insurance coverage at work. Today, in order to make their savings last longer, both have reduced spending compared to what they spent prior to retirement. Recently John had surgery for cancer. Now he’s not certain where the money will come from to pay the high out-of-pocket costs of chemo. John and Jane could use a boost to their Social Security benefits, a stimulus payment, and help with high prescription drug costs, just to name a few.
But let’s return to Mr. Schleifer. The vast majority of those of you who participated in our Senior Surveys — 72% — think that the Social Security payroll tax should be applied to all earnings. Had this one change been in place in 2020 and applied to all compensation, (including the value of stocks received) Social Security would have an additional $16,765,187 in payroll taxes from Mr. Schleifer alone. That doesn’t include the other 6% of workers who earn more than the taxable maximum. Mr. Schleifer’s Social Security taxes would be enough to boost benefits by $360 per year for roughly 46,570 people. People like John and Jane Doe. People like you.
TSCL continues to work for enactment of legislation that would:
- provide a modest benefit boost,
- adjust the federal income tax thresholds that subject Social Security benefits to taxation, allowing moderate - income retirees to keep more of their benefits, and pay for these changes by
- applying the Social Security payroll taxes to all earnings so that everyone pays their fair share.
Sources: National Median Income for 2021, U.S. Census Bureau, September 14, 2021. Equilar/New York Times 200 Highest Paid CEO’s, June 11, 2021. 2020 Profile of Older Americans, Administration for Community Living, U.S. Department of Health and Human Services.