Families with two breadwinners can
end up paying more than twice as much in Social Security taxes as families with
just one income.
At current Social Security tax
rates, a married couple in which each partner independently earns $100,000 pays
a total of $8,400 in employee Social Security taxes. A single breadwinner earning
$200,000 pays just $4,624. A single breadwinner earning $200 million or $200
billion pays the same $4,624.
The reason is that Social Security
taxes are paid only on the first $110,100 of each individual's wages.
Because of the
complexities of Social Security tax rates and the fact that Social Security
taxes are based on individual earnings instead of total family income,
dual-income couples pay more in Social Security taxes than anybody else.
As a result, a typical New Jersey
married couple in which an actuary (average annual salary $100,050) is married
to a database administrator ($82,750) pays 66 percent more in Social Security
tax than either New York's bachelor mayor Michael Bloomberg or the unmarried
shortstop Derek Jeter.
A married Iowa optometrist
($104,370) and radiation therapist ($82,190) together pay 69 percent more than
a single Chicago commodities trader or actor George Clooney, who got divorced
in 1993 and says he'll never get married again.
Now, no one is going to starve on
combined family incomes like these. But there's a big difference between a
family where a single breadwinner makes $200,000 or more a year and a family
where two working parents scrape together $200,000 a year on their combined
incomes.
Individuals earning more than
$110,100 in wage income should pay the same Social Security taxes at the same
4.2-percent rate as everyone else. This isn't just fair. It's also fiscally
prudent.
When Congress lowered the
individual Social Security tax rate from 6.2 percent to 4.2 percent, it didn't
balance this with sufficient taxes or cuts to replace the lost revenue.
Applying the reduced 4.2-percent tax rate to all wage income would more than
make up for the lost revenue.
To make the Social Security system
solvent forever, Congress could simply apply the reduced 4.2-percent individual
Social Security tax to all income instead of just wage income. Currently,
investment income isn't subject to Social Security tax at all.
We shouldn't penalize dual-income
families to subsidize highly compensated individuals. Washington should close the dual-income trap
by levying Social Security taxes on all wage income.
Better yet, apply the 4.2-percent
Social Security flat tax to all income. With everyone paying their fair share,
we can afford to make the reduced 4.2-percent Social Security tax rate
permanent — and at the same time ensure that Social Security will be there for
our children and grandchildren as well.
Salvatore Babones is an American
sociologist at the University
of Sydney