Social Security Taxes
U.S. Senator Patty Murray (D–WA) claims it’s not “fair” that the “effective” Social Security “payroll tax” rate “for people making less than $184k” per year is 12.4%, while the rate for “someone making a million dollars per year” is “about 2.2%.”
IN FACT, SS is a progressively worse deal for workers who earn more money, and the current maximum payroll tax is almost 10 times what politicians promised when they enacted the program. Here are the specifics:
- In 1935, Congress and Democrat President Franklin D. Roosevelt enacted SS with an explicit promise that “the most you will ever pay” in taxes for the program is “3 cents on each dollar you earn, up to $3,000 a year.”
- Adjusted for inflation, the maximum payroll tax is now 9.4 times the promised amount because politicians increased the payroll tax rate and raised the taxable maximum faster than the pace of inflation.
- Per the U.S. Treasury, “Social Security benefits are generally redistributed intentionally toward lower-wage workers (i.e., benefits are progressive).”
- Low-wage workers also receive an effective refund of most of their Social Security taxes through the earned income tax credit.
- Per a Congressional Budget Office report on Social Security, “over their lifetimes most high earners receive much less in benefits than they pay in taxes.”
- More specifically, workers who earn $15,000/year over their careers receive annual benefits equal to 16% of their lifetime payroll taxes, which drops to 8% for workers who earn $70,000, and to 5% for workers who earn $175,000.
- Due to the longer life expectancies of high-income workers, they typically receive more years of benefits, but their lifetime benefit-to-tax ratios are still significantly below that of low-income workers.
- Despite an explicit pledge from the federal government that people will receive SS benefits “regardless of the amount of property or income” they have, the SS benefits of people with high ongoing incomes are taxed.
- Democrats are lobbying to remove the cap on SS payroll taxes and make them unlimited, as they did with Medicare while flouting Democrat President Lyndon B. Johnson’s promise that the program would cost “no more than $1 a month” per worker.
- Removing the cap on SS payroll taxes would markedly sever the relationship between taxes paid and benefits received, further transforming Social Security from a social insurance program into a means-tested welfare program.
