Meet the people who’ve already paid their 2014 Social Security tax
Call them the 900: The Americans who will meet their 2014 payroll tax obligations for Social Security as of today, Day 2 of the New Year.
They’re an impressive group and very elite, bless their hearts: To have earned the maximum taxable wage for Social Security in 2014 ($117,000) in two days, one’s annual income has to exceed about $21.3 million.
The Social Security Administration says that in 2012, the latest year for which it has figures, 894 wage-earners collected more than $20 million, which is as narrowly as it slices the data. They’re not the 1%, or even the .01% -- they’re the .0001%. It’s a group heavily populated by corporate CEOs.
The explanation of why this is important is outlined by Teresa Ghilarducci, an economist at the New School who reminds us that removing the wage cap on the Social Security tax is the surest path to improving the program’s fiscal balance. With the cap removed for top earners, she wrote, “the Social Security system would be solvent indefinitely and they still would be the richest and prettiest in all the land.”
Removing or raising the cap would also help redress an inequity that has crept into the program since the payroll tax was last reconfigured in 1983. The tax increase then -- to 12.4% of payroll up to the cap, divided equally between employer and employee -- covered 90% of all taxable wages, according to Social Security actuaries. By 2009, it covered only 84%, largely due to the sharp run-up in the incomes of the highest-earning taxpayers.
The taxable wage cap is adjusted each year to reflect wage inflation, which also governs increases in initial benefits for new retirees, but plainly it’s fallen behind real changes in the wage economy.
Proposals to eliminate or significantly raise the tax cap are often heard in Washington -- one current proposal has been put forth by Sen. Tom Harkin (D-Iowa) -- and invariably dismissed out-of-hand.
That’s because the ox they gore is an influential and well-heeled ox indeed. Harkin’s proposal, like many others, would raise benefits to partially keep pace with the increase in taxes, but in all cases the program would become more progressive. In other words, the benefits would flow even more strongly to middle-class and working-class retirees. As we’ve explained before, these are the people whose retirement security is increasingly at risk.
Yet the focus of the Social Security debate in Washington remains benefit-cutting. That’s another thing that’s remarkable about our cadre of corporate CEOs: They’re prominent in the “cut benefits” crowd.
Consider, for instance, David Cote, the CEO of Honeywell. He’s a member of the CEO steering committee of Fix the Debt, an anti-deficit organization backed by hedge fund billionaire Peter G. Peterson that rails incessantly about the need to rein in “entitlement” programs such as Social Security and Medicare.
Cote earned $33.2 million in 2012, the latest year reported by his company. On a 365-day basis, that means that if he earns the same this year, he’ll meet his 2014 obligation to Social Security by about 8 a.m. Thursday. To be more precise, however, let’s note that a bit more than half his annual compensation was deferred, leaving only $15.9 million in salary, bonus and stock-based pay; at that level he’ll be exempt from any further Social Security payroll tax by about noon Friday.
Of course, he’s not alone. Among the members of Fix the Debt’s CEO steering committee are seven other executives who pulled down $20 million or more in 2012, and there are dozens more on its CEO council.
As the first glimmers of bipartisanship in federal fiscal policy begin to emerge in Washington, Social Security benefits may be back on the cutting block. Keep in mind that not a single one of these CEOs would feel the pain of a cut in Social Security retirement benefits of any size. But they’d all probably notice that they’re paying Social Security taxes through the year, rather than just for a few days in January.
If you need a good explanation of why their prescriptions for the program lean heavily toward cutting benefits and vociferously against raising revenues, go no further.