Meet the people who are so rich they’ve already paid their 2014 Social Security tax

This is turning into Michael Hiltzik week. Couldn’t happen to a nicer writer. (For the first installment, click here.)

So you know that there are lots of kinds of taxes, right? And that in addition to the other taxes on income — federal income tax, state income tax — there’s also a Social Security tax and a Medicare tax, also on income, or more precisely, on wages.

All of the above taxes are on all income, or all wages, except one — the Social Security tax. Unlike all the other taxes on income and wages, the Social Security tax is subject to a “wage cap,” a dollar amount over which the tax isn’t applied. This year that number is $117,000 (it increases slightly every year). A couple of things to note about this:

Social Security

Social Security via Shutterstock

▪ Most people don’t know there’s a wage cap on the SS tax because most people don’t reach it. They just don’t make that much. Most people pay Social Security tax all year, right to the end. Every paycheck has SS tax deducted. Unless your income increases because of a raise, the combined SS tax and Medicare tax (called “FICA” on your pay stub) never changes.

▪ As a result, this special tax break for high-wage types is hidden from most people. What you don’t know about, you can’t complain about.

▪ High-wage people know about the cap though, because sometime before December 31, their take-home pay changes. On a certain date, their accumulated yearly wages hits the magic number (the cap) and then their after-tax pay suddenly increases by more than 6% — a big jump for most of them. Almost all of these people remember that day, because they suddenly have more spending money, and they’ll have that money for whole rest of the year.

▪ Many people with incomes higher than the wage cap even celebrate that day — go out to dinner or something and spend a few of those extra dollars. Who wouldn’t?

Which means:

▪ The higher your wages, the earlier in the year you stop paying Social Security. Call it your personal Tax Freedom Day.

So when is your personal Tax Freedom Day? When does your income hit the SS wage cap? Never? On December 15? December 10? November 1? How about on July 12? How about earlier?

For some people, that day is very early. For some people, about 900 of us, Tax Freedom Day comes on January 2, just two days into the new year. Hiltzik (my emphasis and paragraphing):

Call them the 900: The Americans who will meet their 2014 payroll tax obligations for Social Security as of … 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.

There’s more in the article, well worth a full read. For example:

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 [i.e. the rise in income inequality].

These people, the “900,” are part of the “1% of the 1% of the 1%”. (That group also includes hedge fund managers as well as others who never pay SS tax on their earnings.) The 900 are part of the ruling class, and every CEO who earns above $21 million is in it. From another piece on the same subject:

Of the 894 individuals, 70 were executives from corporations like Starbucks, ComCast, Pfizer, Philip Morris and NewsCorp.

Yep, the “900” includes that nice man who runs Starbucks for you, and almost certainly included that far-seeing lover of humanity who runs the Google, before he retired from CEO to the Board of Directors to pull down a mere $7.5 million a year. Heck, three of the Senior VPs at the Google pulled down a whole lot more — one of them a cool $51 million. They’re in the “900 club” as well. 

You want to check for yourself which proud member of the CEO class is on the list? Click here and browse away.

I’d love to get a list of those 900 names but I can’t without a ton of research. Yet these are the people who matter, they and their billion-dollar-income hedge fund friends. These are our rulers, your lords and masters. They write the checks in this country, the real checks — checks to you and me as wages, checks to millionaire athletes, checks to our political leaders to finance their campaigns and careers. 

Which means that, in the aggregate, these people write our laws — laws that guarantee they stay effectively untaxed, laws that guarantee that most of our political leaders can’t have careers without them.

900 people pay their entire Social Security tax in two days of work or less. Now these are a big-time job-creators, wouldn’t you say? And if you wonder where all those jobs get created, just turn west and look across the blue Pacific. You’ll find nearly all of them.

Thanks, Mr. Hiltzik. Nice catch.


To follow or send links: @Gaius_Publius

Gaius Publius is a professional writer living on the West Coast of the United States.

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