Father and Son Tackle Social Security Reform Together

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http://www.nationofchange.org/father-and-son-tackle-social-security-reform-together-1357828222

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Back in 1983 the payroll tax ceiling was set so the payroll tax would hit 90 percent of all wages covered by Social Security. In other words, 90 percent of total U.S. income collected in 1983 was subject to payroll taxation. Legislators assumed that as long as the annually adjusted payroll ceiling rose with wages then the Social Security payroll tax would continue to hit 90 percent of total national income. The problem is that income growth has gone disproportionately to those at the top, the very individuals who pay a smaller proportion of their income in payroll taxes.

Whereas the top 1 percent of income earners raked in 10.1 percent of total national income in 1983, they collected 23 percent in 2007. Since 1983, moreover, the share of before-tax national income for the bottom 80 percent of wage earners—those who pay the largest portion of their salary in payroll taxes—dropped by 15 percent. Over the same time period the top 1 percent of income earners grew their before-tax share of national income by 85 percent.

The result? Today’s Social Security payroll tax reaches somewhere between 83-84 percent of total national income, down by about 7 percentage points since 1983. Robert Reich, former U.S. Secretary of Labor, estimates that raising the payroll ceiling from $113,700 to $180,000, without adjusting the current 6.2 percent tax rate for workers, would ensure that payroll taxes reach 90 percent of total national income and provide long-term stability to the program.

The Center for American Progress finds that rising levels of income inequality alone have accounted for half of Social Security’s shortfall. Had earnings inequality remained the same since 1983, such that a constant share of wages and salaries – 90 percent – had been subject to Social Security taxation, Social Security’s shortfall would be 47.7 percent smaller.