Ninety-four percent of us pay into Social Security from every paycheck we receive. A few of us stop paying into Social Security in the first few working hours of the year.
The “Tax Freedom Day” Scam
Every year you hear a lot about Tax Freedom Day. This is the day the public supposedly has “earned enough money to pay its total tax bill for the year.”
According to the Tax Freedom Day website: “Americans will collectively spend more on taxes in 2016 than they will on food, clothing, and housing combined.”
The trick, of course, is the word “collectively.” As in “Bill Gates walks into a room full of homeless people. Collectively the room owns billions of dollars of wealth.” Non-billionaire Americans don’t pay nearly this much in taxes.
Tax Freedom Day is an anti-government propaganda gimmick where the billionaire class suggests that we stop “working for the government.” It’s a trick: most of us don’t pay that much in taxes and those who do are making so much money they hardly notice it.
Let’s see how this “Tax Freedom Day” formula can be applied to framing America’s retirement crisis.
“Social Security Freedom Day”
Almost all of us pay the 6.2 percent Social Security “payroll tax” on every dollar that we earn. Employers pay an additional 6.2 percent. If you are self-employed you pay the entire 12.4 percent. These taxes are paid until we reach a “cap” of $127,200 in a year so the maximum anyone pays is $7,886 (twice that if you are scam-classified as a “contractor.”) Ninety-four percent of us never reach that point.
Again, you pay 6.2 percent of your earnings, 12.4 percent if you are self-employed, until you make $127,200. So there is no “Social Security Freedom Day” — the day we stop paying this tax — if we are regular people who make less than $127,200.
Put another way, if you make more than $127,200 you reach a “Social Security Freedom Day” and stop paying this tax. You only pay $7,886 no matter how much more you make. The more you make the sooner your “Social Security Freedom Day” arrives.
“Social Security Freedom Day” never arrives for most of us. But how early does “Social Security Freedom Day” arrive for some of us? According to a post by Teresa Ghilarducci, an Economics professor at The New School for Social Research titled, Who Is Finished Paying Their 2017 Social Security Taxes? Probably Not You.,
For those at the upper end of the income distribution (the top 1 percent, or the 2 million people earning more than $250,000 per year and the 137,000 people earning more than $1 million per year), $127,200 is a trivial amount on which to pay Social Security tax.
Take, for example, the top 9,600 or so wage earners who earned over $10 million per year (2015 is the latest data available). New Year’s Day 2017 fell on a Sunday. By the time they finish their two weeks back at work, they will be done paying Social Security taxes for the entire year.
That is nothing. The 202 Americans who earned more than $50 million a year finished paying less than 5 hours after the ball dropped in Times Square. Another 773 people earning between $20-$50 million a year will finish paying the tax before you finish reading this blog on January 2nd.
“Social Security Freedom Day” arrived very early for those top 773. How early? Ghilarducci writes, “We can have fun with the calculations: who will finish paying by their first coffee break of the day? After brushing their teeth? After their hangover?”
The rest of us pay in all year, a 6.2 percent tax that the wealthy don’t pay. That’s 12.4% if you are a “contractor.” Straight off the top of your income.
The Retirement Crisis
America’s experiment in shifting retirement obligations away from employers and onto working people through IRAs and 401Ks has clearly failed. Most Americans do not have enough savings, pension and expected Social Security benefits to be able to get by when they retire — if they even can. One-third have nothing saved up. The median working-age couple has saved only $5000 and seventy percent of couples have less than $50,000 saved.
Even people who have earned pensions are seeing them being cut because corporations skimped on funding the plans.
This leaves far too many people dependent on Social Security. The average monthly retirement income from Social Security was $1,341, or $6,092 per year, and only $2,212 for couples, or $26,544 per year.
This is not enough for people to get by. But a few of us — the very same few who stop paying into Social Security so early in the year — are retiring in luxury.
The Retirement Divide
Not everyone is facing a retirement crisis. Not at all. There is a stark divide between most of us and a few of us when it comes to retirement. Those same few who get a nice, early “Social Security Freedom Day” and no longer pay into Social Security are the very people who do not face a retirement crisis.
Exxon CEO Rex Tillerson, for example, is retiring to join the Trump/Putin administration. He is receiving a $180 million retirement package including include a pension valued at $69 million.
How wide is this divide? A December, 2016 Institute for Policy Studies report titled, A Tale of Two Retirements, shows there is a huge retirement security divide between those at the top of corporate America and nearly all the rest of us.
From a summary of the report:
Just 100 CEOs have company retirement funds worth $4.7 billion — a sum equal to the entire retirement savings of the 41 percent of U.S. families with the smallest nest eggs.
This $4.7 billion total is also equal to the entire retirement savings of the bottom:
59 percent of African-American families
75 percent of Latino families
55 percent of female-headed households
44 percent of white working class households
Need To Increase Social Security
Obviously the first obligation of a government should be to its people. With the failure of “market solutions” that shifted responsibility for retirement from corporate pension plans to to IRAs ad 410ks something needs to be done. This shift boosted corporate profits, providing huge sums for payouts to executives and shareholders — again, the very same people who get their own “Social Security Freedom Day”. But it has impoverished huge percentages of resent and future retirees.
How do we pay for expanding Social Security? That’s simple. Social Security needs to get the money from where the money went. The well-to-do don’t need a “Social Security Freedom Day” because they are already well-to-do. Eliminate this “cap” and have everyone pay into the system so everyone can retire with some dignity. And what about a requirement for corporations to contribute to employee retirement pension funds?
This post originally appeared at Campaign for America’s Future (CAF) at their OurFuture site. I am a Fellow with CAF, a project of People’s Action. Sign up here for the OurFuture daily summary and/or for People’s Action’s Progressive Breakfast.