Plentiful Wealthy Americans Already Covered Their 2025 Social Security Tax Commitments
Midnight on New Year's Eve, 229 High-Earners Avoid Social Security Tax
Earnings beyond $176,100 annually, the Social Security tax cap, remain tax-free for rich individuals like a civil engineer earning $176,100 and Elon Musk in the eyes of Social Security. As per public records, Musk might have paid his entire Social Security tax by 1 minute past midnight New Year's Eve due to his Tesla earnings. If all his income were taxed, it would take him approximately 60 seconds.
Alexander Karp, CEO of Palantir, may pay his Social Security tax within 19 minutes post New Year's Day, while Hock Tan, CEO of Broadcom, and Brian Armstrong, CEO of Coinbase, could have completed their deductions by around 12:30 a.m. The first few hours of 2025 might see more than 229 U.S. workers with an income above $50 million annually paying their entire annual Social Security tax. There are likely more wealthy CEOs from private companies who have paid their tax within half an hour on New Year's Day.
163 Million Americans Pay Social Security Tax Throughout the Year
In contrast, more than 164 million workers (approximately 94% of us) continuously contribute towards Social Security taxes. The fact is that a substantial amount of income evades the Social Security system, mainly for wealthy Americans.
If the federal government decided to increase the cap on taxable Social Security earnings and included more income sources – such as interest and business receipts – in the definition of earnings, it could help close the solvency gap. Taxing this expanded income base could cover promised Social Security benefits for 35 years and even fund poverty elimination among all Social Security recipients.
A Guide to Social Security Finances
The Social Security Old Age and Survivors’ benefits tax rate is 12.4% (divided equally between employees and employers) and applies to earnings up to the maximum cap, which increases each year. In 2025, this cap is $176,100. In 2023 (most recent data), approximately 176 million Americans and their employers contributed $1.1 trillion to the Old Age, Survivors, and Disability system.
If the Social Security cap had not existed, the 6% of U.S. workers earning more than the Social Security taxable maximum would contribute about $388 billion to Social Security. If the earnings cap were eliminated, only the handful of people earning over $50 million annually would pay $3.6 billion in Social Security tax, which is more than 77% of workers earning less than $57,000 annually pay in Social Security tax.
I repeat: 229 high-income Americans would contribute the same amount in Social Security tax as 77% of American workers earning less.
If Congress and the president take no action to secure additional revenue for Social Security, in 2033, Social Security benefits will suddenly decrease by 21%.
To ensure Social Security solvency beyond 2033, the tax rate could increase or the tax base could be expanded to include all income. Social Security's deficit is measurable by how much the payroll tax would have to rise to cover promised benefits for 75 years. This increase would be relatively small, just 3.62 percentage points (1.81 percentage points for employees and employers each). Therefore, the tax increase would not be too severe.
However, economists, including myself, favor expanding the tax base by increasing the earnings cap and including income from capital as per a report by the Congressional Research Service.
Legislation Can Make Social Security Solvent
In the House of Representatives, Rep. John Larson (D-Conn.) has advocated for years to expand Social Security benefits and revenues by raising the tax base. In the Senate, "The Social Security Expansion Act," introduced by Senators Bernie Sanders (I-Vt.) Elizabeth Warren (D-Mass.) and Congresswomen Jan Schakowsky (D-Ill.) and Val Hoyle (D-Ore.) would raise the taxable earnings cap to $250,000 and include investment income, just like Larson's bill.
Their proposal collects more than enough revenue to address the long-term deficit. The extra revenue is used to increase Social Security benefits to eradicate most elder poverty. (The Office of the Chief Actuary of Social Security, Steve Goss, and Social Security Works, a nonprofit Social Security think tank, are valuable sources for updates on Social Security legislation.)
Political Prospects for Social Security Reforms
There is hope. In December 2024, Republicans and Democrats raised Social Security benefits for more than 2 million people by repealing the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO).
The hope is that the bipartisan support for Social Security benefit expansions may signal that Congress is listening to the majority of Americans – Republicans and Democrats – who desire more revenue for Social Security and oppose benefit cuts.
The unfortunate news is that lately, House Republicans have suggested reducing Social Security benefits by roughly 8% by increasing the complete retirement age to 69. Moreover, as per a report by the meticulous Committee for a Responsible Federal Budget, President-elect Donald Trump's sole Social Security proposition would negatively impact the fund by approximately $23 billion.
In the latest actuarial report, the Social Security Trustees mentioned that legislators possess several alternatives to address Social Security's long-term funding deficits and boost benefits: "Acting promptly instead of delaying will allow exploration of a wider array of solutions."
Perhaps, the most swift and efficient method to amend Social Security could involve requesting a minimal percentage of the wealthiest American citizens, such as Elon Musk and other prestigious CEOs, to contribute year-round.
Elon Musk, along with other high-income individuals, only pays their Social Security tax in the first few minutes of New Year due to the tax cap, while the majority of Americans contribute throughout the year. If the taxable earnings cap were eliminated and included in income sources like interest and business receipts, it could help close the Social Security deficit, as proposed by politicians like Rep. John Larson and Senators Bernie Sanders and Elizabeth Warren.
