Congress recently enacted legislation that ended two so-called Social Security benefit “loopholes” — known as “file and suspend” and “restricted application.” Details about the changes, which affect some married couples and took effect on April 30th, 2016 — can be found in the Social Security Q & A.
While the benefit cuts were negotiated in secret and enacted swiftly with virtually no public debate, Congress passed up the opportunity to close another and far bigger Social Security loophole — one that allows people with the nation’s highest wages (including all Members of Congress) to get an enormous tax break, while paying Social Security (FICA) taxes on just a fraction of what they earn. In fact, about 6% of all wage earners, according to the Social Security Administration, pay no Social Security taxes at all on earnings over $118,500. Once they have earned $118,500, these workers get to keep 6.2% of every dollar earned over that amount in wages.
Scrapping the Social Security payroll tax cap on the taxable wages would not only provide enough revenues to make the program solvent for another 50 years, but would also pay for a more fair and accurate cost-of-living adjustment (COLA) for current retirees. For example, say a CEO of a company receives $2 million in compensation. That individual and the employer each pays 6.2% Social Security taxes on the first $118,500 in wages. Social Security receives a total of $14,694. But if the entire $2 million were taxed, Social Security would receive $248,000 instead.
According to a survey by The Senior Citizens League (TSCL), 70% of older Americans think Social Security’s solvency should be improved by scrapping the Social Security taxable wage limit of $118,500.
TSCL supports legislation that would get rid of the taxable wage cap and require all workers to pay their fair share into Social Security.
Sources: “Policy Brief: The Evolution of Social Security’s Taxable Maximum,” Social Security Administration, September 2011, No.2011-02.