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Senator Elizabeth Warren has seemingly found what she believes is an easy way to help fix Social Security: tax more income.
Not her best idea and certainly not new.
This year, workers pay Social Security taxes on the first $184,500 they earn. Warren argues that’s unfair. A nurse making $80,000 pays Social Security tax on every dollar of wages, while someone making $500,000 doesn’t.
Sounds compelling.
But it leaves out something rather important.
There’s a reason the Social Security tax stops at $184,500: Social Security benefits essentially stop accumulating above the taxable maximum, too.
Social Security was not designed as another general income tax. It was designed as social insurance. That distinction matters.
You work. You contribute. Your earnings record helps determine your eventual benefit. That’s equitable to all.
And there’s a ceiling on both sides of that equation. Also basic fairness.
The government doesn’t say to someone earning $500,000, “We’re going to calculate your retirement benefit as though you earned $500,000.” For Social Security purposes, earnings above the taxable maximum aren’t counted.
That’s why calling the cap a “loophole” or suggesting high earners somehow escape their fair share misses the fundamental architecture of the program.
They stop paying because they also stop earning additional benefits.
Want to change that arrangement? Congress certainly can.
But let’s be clear about what we’re doing.
If we eliminate the taxable maximum while continuing to cap benefits, we’ve fundamentally changed the bargain. Social Security moves another step away from contributory social insurance and another step toward an income-redistribution program in which taxes and benefits are increasingly disconnected.
And there’s another number worth remembering.
A worker earning at least the taxable maximum for his or her career and retiring at full retirement age in 2026 can receive a maximum benefit of about $4,152 per month.
Earn $184,500? Potentially $4,152.
Earn $500,000? Still potentially $4,152.
Earn $5 million?
Still potentially $4,152.
So if we’re going to ask why someone earning $500,000 doesn’t pay Social Security taxes on every dollar, we should also ask why that person doesn’t receive Social Security benefits based upon every dollar.
The answer to both questions is the same:
Because Social Security has a contribution and benefit base.
None of this means Social Security doesn’t have a serious financing problem. It does. Congress is going to have to deal with it and in typical fashion hasn’t done so for fear of political retribution.
But “make rich people pay more” isn’t an explanation of how Social Security was designed. It’s an argument for changing how Social Security works.
That’s a legitimate, albeit incorrect and unfair in my view, policy prerogative.
Warren should be intellectually honest about what she’s asking for so Americans can debate the policy in a worthwhile way.
So far, she hasn’t.
Editor’s Note: Senator Bernie Moreno (R-Ohio) is also an architect of the Warren plan.