If you’ve ever been paid for a job and received a pay stub, you would have seen a section off to the right that lists all the money you’ve paid to taxes, and where it is going. Outside of Federal income taxes, the largest section is one called Social Security, listed under your taxes as FICA SS.
What is social security? Social Security is a flat rate paid by all workers (6.2% of income) and employers (a matching 6.2%) into a transfer program. FICA, the Federal Income Contributions Act, is a payroll tax (meaning it comes out of your income) that funds both Social Security and Medicare. In the case of Social Security, workers pay the designated percentage of their income and retirees receive that money in the form of a monthly payout to help support them after retiring. The program succeeds under the assumption that those workers will receive the same benefits once they retire.
This assumption, however, seems to be less of a guarantee in recent years. The fear surrounding social security has grown dramatically in the past few years, with the possibility that Generation Z (current and soon-to-be college students) is paying into it without the promise of receiving the benefits. Current college students would be drastically affected by this, as they would pay 6.2% of their lifetime into this program, only to not receive any benefits by the time they retire.
This could happen for a few reasons. First, people are living longer than when the program was initially created, meaning that payments are being paid out for much longer than was anticipated when Social Security started. Additionally, the birth rate is going down. Social security was instituted in 1935, and was followed shortly after by the generation nicknamed the “baby boomers” due to the drastic increase in the birth rate. Because there were many young workers paying into the program, Social Security was much easier to maintain. The U.S. fertility rate has decreased by almost 50% since 1960, leading to a decrease in funding for Social Security. Lastly, there has been a significant decline in funding of real wage growth, meaning wages are staying more stagnant than expected, and hence, funding from increased incomes is not a source of growth for Social Security.
The solution to this problem comes in the form of a popular sentiment from college-aged voters: tax the rich. A key factor of Social Security is that there is a taxable income cap. What this means is that workers are only taxed for Social Security on the first $147,000 of their income, but not on any income made over that. This taxable income covers about 83% of aggregate earnings. If the tax were raised to cover 90% of aggregate earnings, 20% of the long term shortfalls of the Social Security budget would be solved. The more this cap is raised, the more the long-term problem of Social Security funding is mitigated.
This is not an unprecedented approach. The other FICA tax on your paystub is Medicare. Medicare also used to have a taxable income cap; however, it was removed in 1993. It is important to note that the Medicare tax is only 1.45% of income, so raising the cap was less controversial and led to greater funding for the program. Nevertheless, what this shows is that this change is a feasible one, and necessary to guarantee the financial safety of retirees in our country.
Additionally, it’s important to note that the majority of job growth since 1979 has come from the top 10% of earners. This top-heavy form of growth means the majority of taxable income is not growing (accounting for inflation), while the untaxed income is growing considerably.
Despite this, it is important to note that there is a reason for this taxable income cap. Social Security benefits are progressive in nature, meaning that the less money you’ve made in your lifetime, the higher percentage of the money you’ve given to Social Security you will receive. (This is designed to keep people with lower incomes out of poverty once they retire.) People with higher incomes are already giving more to the system and receiving proportionally less, so the taxable income cap is an attempt to cancel out how this may be unfair.
Although individuals with incomes above $147,000 may not benefit as much from Social Security as the taxable income rate is raised, there is a high chance that people they care about would be affected. An estimated 40% of older adults would be in poverty without Social Security. Mothers, fathers, siblings, friends and more are relying on this program to keep them afloat in retirement. This demonstrates how devastating the collapse of Social Security would be for everyone, as even if an individual isn’t affected, people in their life are.
“Taxing the rich” is not a new phenomenon in our country. By raising the Social Security income tax, we as a country can make significant progress in guaranteeing people who have paid into this system for their whole lives the security they deserve in their retirement, as those before them were guaranteed.
Claudia Flynn is an Opinion Columnist and can be reached at email@example.com.