“Goss argued that rising income inequality — with fast growth at the top and slow growth everywhere else — is the mystery ingredient that has thrown Social Security’s finances into turmoil earlier than planned. And the big change took place in the 17 years after the Greenspan Commission made its projection, from 1983 to 2000, he said.
“During that time, incomes for the best-paid 6% of earners rose by 62% in real, inflation-adjusted terms, he said. For the other 94%, incomes rose by just 17%.
“The net result was that the lion’s share of U.S. income growth was above the Social Security cap, and wasn’t subject to the program’s payroll taxes. The percentage of incomes subject to the program’s tax collapsed from around 90% in the early 1980s to barely 82% by the turn of the millennium.
“‘This is a massive change in the distribution of earnings, and that’s what caused us to have a much smaller share of all covered earnings falling below our taxable maximum,’ Goss said. ‘This is a major component of the shortfall we’ve had.'”
This is the first time that we’ve heard SSA’s chief actuary emphasize that growing income inequality is a major cause of Social Security’s financing shortfall. Here’s what we wrote five years ago: