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Thursday, 02 November 2017 06:31

Big Social Security Loophole for Rich Continues in Proposed Tax Changes

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socialsecuritycardThe rich should pay their fair share of Social Security taxes. (Photo: DonkeyHotey)

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Anyone who thinks that Social Security payments allow a lavish income for recipients is lost in fantasy. In June 2017, The Motley Fool reported  that "the average person who signed up for Social Security in the past year was awarded $1,413.08 per month in benefits."

Depending on whether a person also benefits from a spousal Social Security income, they're receiving a check that puts them just barely above the poverty level for a single person or solidly above the poverty level for two people receiving Social Security. Included in this average Social Security payment are costs associated with Medicare -- which is not without required expenses, despite the common perception that it provides "free" care. In short, Social Security checks for the average retired working class person are generally just enough to get by on, as long as there are no medical or other emergencies.

Meanwhile, as an article by Sam Pizzigati on Inequality.org underscores, when it comes to paying for Social Security, working class taxpayers are handing over a much more significant portion of their income than are wealthy taxpayers. The tax cuts proposed by President Trump and those being considered by Congress would do nothing, as Pizzigati points out, to end the gift to the rich that stops Social Security taxes being assessed for incomes above $127,200. Earners up to that level have a 6.2 percent tax for Social Security deducted from their earnings.

This leads to an inexcusable disparity in funding Social Security. As Pizzigati points out in his report,

Now the administration is pushing a tax “reform” that totally ignores the unfairness of the current Social Security payroll tax and instead hands America’s wealthiest a stunningly generous assortment of tax giveaways.

If this Trump tax plan passes, Americans making $60,000 will still be paying over four times more of their income in payroll taxes than Americans who make $1 million. And America’s millionaire-packed top 1 percent will get 80 percent of the new Trump tax cuts, the Tax Policy Center calculates.

Republicans on Capitol Hill like to attack Social Security as an entitlement, but as I have pointed out in the past, it is not. Social Security is a government-administered pension fund. It is paid for by workers, not the government. It is not a gift; it is an earned financial cushion that aids in retirement -- and for most earners, it's a minimal one. What Pizzigati reaffirms, however, is that payroll taxes hit the lowest-paid income earners the hardest. Furthermore, Social Security is paid out based on the amount a person pays into the fund. Therefore, the lower income workers who pay a higher percentage of their income -- but at a lower net level -- into the pension fund receive a lower monthly payment than the wealthy.

Pizzigati rightly asserts that if the government didn't have a cutoff income level for Social Security taxes, there could be an increase in benefits. This would help those seniors who currently have to choose between food and medical care. (Medicare does not cover all costs of medical treatment, particularly prescriptions, which a Medicare recipient needs to pay for through Medicare Part D.)

In 2016, the Center on Budget and Policy Priorities proposed:

Raising the cap would help mitigate the erosion of Social Security’s payroll tax base caused by rising wage inequality. Most workers’ taxes would not change, while the degree of increase in high earners’ taxes would depend on whether the cap were raised or eliminated.

That this proposal has not been implemented is economically unfair. Combined with Trump's and Congress's proposed tax cuts for the wealthy, Pizzigati calls the Social Security tax status quo an "outrage."

It certainly is. Real tax "reform" would level the playing field, not continue to tilt it in favor of the rich.