In the debate over Social Security’s long-term finances, some argue that the program is unsustainable because it is paying out more in benefits than it takes in. They say that benefits, including cost-of-living adjustments (COLAs), should be reduced to bring the program back into balance. Others say that the program is unsustainable because revenues need to be increased. With new sources of revenues, Social Security would be better able to pay program obligations, provide a modest boost to COLAs, or increase benefits for people who are the most vulnerable to poverty.
Under current law, employers must withhold a 6.2% Social Security tax from workers’ earnings, an amount that they match for a total of 12.4%. That money is used to pay benefits to today’s retirees. The majority of U.S. workers pay Social Security taxes on every dollar earned.
But that’s not the case for the roughly 12 million employees with the highest salaries in the country. Unlike the Medicare payroll tax, which applies to all earnings, Social Security payroll taxes apply only to the first $128,400 in earnings. Employees earning more than $128,400 (the “taxable maximum”) and their employers pay no Social Security taxes on earnings in excess of that amount. The Congressional Budget Office has forecast that the earnings of people who make more than the taxable maximum is growing faster than the earnings of those who earn far less. That means even though revenues will rise in the short term, the Social Security Trust Fund will receive a declining share of payroll taxes in terms of the gross domestic product over the next 30 years as incomes of the highest-paid employees climb.
What sort of money is at stake? We took a sampling of the 20 top CEOs of our nation’s top 80 corporations and downloaded each company’s public 2018 proxy information that contains the executive summary compensation table as required by the Securities and Exchange Commission (SEC). Our analysis uses only the actual salary and performance pay, both of which are subject to payroll taxes up to the limit. We did not include the value of stock awards, which often far exceeds the CEO earnings.
Here’s what we learned…
- Of the 20 CEOs, annual income not taxed for Social Security totaled $121,545,322 and averaged $6,077,266 per CEO.
- If all that income was taxable, the value in revenues based on the 12.4% Social Security tax would be $15,071,619, an average of $753,581 per CEO.
- The total revenues in the sample could support 897 retirees with an average monthly benefit of $1,400 for an entire year. Or, the revenues could be used to provide a modest boost to the COLA of 448,560 retirees in the first year, by tying the annual inflation adjustment to the Consumer Price Index for the Elderly (CPI-E). The average CEO’s revenues would cover the entire benefit of 45 retirees with an average benefit of $16,800 for a year, or, boost the COLA of 22,428 retirees with average benefits in the first year.
The following chart illustrates 5 examples:
|Company and CEO or CCO*||Annual income NOT taxed for Social Security||Value if taxed for Social Security at 12.4%||Could Boost COLAs for following number of retirees*|
Brian L. Roberts
Dennis A. Mullenburg
|Bank of America
Thomas K. Montage**
Thomas J. Wilson
**Chief Compliance Officer
*In the first year.
Our example just looked at the salaries and performance pay of 20 CEOs. According to the Social Security Administration there are 12 million people who earn above the taxable maximum in 2018. TSCL strongly supports legislation that would lift the taxable maximum to pay for a more fair COLA.