Social Security Independence Day

Happy 4th of July to everyone with $291,000 in gross annual wage income! Today is the last day you will contribute to Social Security. For you, Independence Day begins tomorrow, when your take-home pay will jump by 6.2 percent. That’s because only about half of your wage income (50.5%) is subject to the payroll tax withholding for Social Security.

For those of you with gross annual wage income of $147,000 or less, your contributions will continue through December 31. That’s because 100 percent of your income is subject to the payroll tax withholding.

Many democrats would like to change that. Here’s Senator Bernie Sanders (I-VT):

Today, absurdly and unfairly, there is a cap on income subject to Social Security taxes which is just $147,000 a year. That means that if you’re a multi-billionaire you pay the same amount into Social Security as someone making $147,000 a year. 

It means if you make $147,000 a year or less you pay 6.2% of your income in Social Security taxes. But if you make 10 times more – $1,470,000 – you pay just 0.62% of your income in Social Security taxes. That may make sense to someone. It doesn’t make sense to me.

Sanders has introduced legislation to change the way the payroll tax withholding is applied. It won’t pass, but if it did, it would apply the Social Security payroll tax to all forms of income, including capital gains and dividends, for those who make over $250,000 a year. It would have no impact on 93.6 percent of Americans, but it would raise taxes on the wealthiest 6.4 percent of households. 

As I’ve explained in recent columns, his motivation is simple:

[O]ur legislation would make Social Security solvent for the next 75 years, expand benefits for seniors and people with disabilities by $2,400 a year, and increase COLAs, which would lift millions of seniors out of poverty.

I won’t rehash the MMT line of argument here. Just click on one of my recent columns if you need a reminder. And if you want to play around with the numbers to see when Independence Day comes for people who occupy different rungs of the income ladder, just click here.

Have a safe and Happy 4th!