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Essay on Inequity Compounded: How Social Security’s Wage Cap Threatens Its Viability

Updated August 11, 2022

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Essay on Inequity Compounded: How Social Security’s Wage Cap Threatens Its Viability essay

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Social Security, a critical safety net for older Americans, is expected to run out of cash by 2035 (Office of the Chief Actuary, 2020). This depletion would force Social Security to rely solely on current tax income to operate, translating to a 24% reduction in retiree benefits paid out (Office of the Chief Actuary, 2020). Lower-income retirees, for whom Social Security comprises a higher proportion of income (Social Security Administration, 2016), will be hardest hit by any reductions. This includes older individuals from minority groups, who are projected to make up an increasing proportion of the older adult population, and are more likely to live in poverty than their white counterparts (Administration for Community Living, 2018).

Today, more than 90% of those aged 65 and above receive social security benefits, which comprise, on average, a third of their total income (Social Security Administration, n.d.). For one half of married couples, and nearly three fourths of unmarried individuals of retirement age, social security accounts for about half of their total income (Social Security Administration, n.d.) For some subgroups, social security is even more essential. For example, one half of older African Americans depend on social security for 90% of their income, and for more than a third, it represents their only source of income (National Committee to Preserve Social Security and Medicare, n.d.). Without social security, more than a half of older African Americans would live in poverty.

One proposal for bridging the funding shortfall involves the elimination of the Social Security wage cap, or the maximum amount of one’s income that can be taxed for social security. Set at $137,700 in 2020 (Social Security Administration, 2020), this cap translates to a lower effective tax rate for America’s wealthiest individuals.

America’s wealth gap has continued to widen in the past two decades, increasing more than two-fold between 2001 and 2016 (Schaeffer, 2020). While 6.5% of Americans earned above the income cap in 2018 (a figure that has remained consistent over the decades) (Congressional Research Service, 2019), the rising wealth gap in America has compounded the earnings shortfall: the proportion of total U.S. income eligible for Social Security taxes has declined from 90% in 1982 to just 83% in 2017 (Congressional Research Service, 2019). By one estimate, if the income cap was raised so that income taxed returned to the 90% level, the shortfall would decrease by 25% (Johnson, 2020).

But is it enough to simply raise the income cap, when 75% of the funding gap remains, and the wealthiest are still paying a minute portion of their incomes into the program? Eliminating the wage maximum without increasing the benefits formula would reduce the funding gap by 84%, while the remaining shortfall could be met with a payroll tax increase of .43% (Congressional Research Service, 2019). Even if social security benefits were to increase commensurate with the amount paid in, we would see a 30-year extension in social security solvency.

A majority of older Americans depend on Social Security for their livelihoods, and it must be protected. The most equitable solution is to have those who can most afford to pay contribute the same proportion of their incomes as less well-off Americans.


  1. Administration for Community Living. (2018). 2018 Profile of Older Americans.
  2. Congressional Research Service (2019). Social Security: Raising or eliminating the taxable earnings base.
  3. Johnson, R. (2020). How does earnings inequality affect social security financing? AARP Public Policy Institute.
  4. National Committee to Preserve Social Security and Medicare (n.d.). African Americans and Social Security.
  5. Office of the Chief Actuary (2020). The 2020 annual report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds.
  6. Schaeffer, K. (2020). Six facts about economic inequality in the U.S. Pew Research Center.
  7. Social Security Administration (n.d.). Social Security Factsheet.
  8. Social Security Administration (2016). Income of the Population 55 or Older, 2014. (SSA Publication No. 13-11871).
  9. Social Security Administration (2020). Contribution and Benefits Base. Retrieved on 6/5/2020 from
Essay on Inequity Compounded: How Social Security’s Wage Cap Threatens Its Viability essay

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