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Keep the Cap

Why a Tax Increase Will Not Save

Social Security

by Michael Tanner

No. 93

June 8, 2005

the first 10 years. Even increasing the cap to cover

Some opponents of allowing younger workers

the first $150,000 of wages would amount to $384

to privately invest a portion of their Social Security

billion in new taxes. It would give the United States

taxes through individual accounts have suggested

one of the highest marginal tax rates in the indus-

that most or all of Social Security's financial prob-

trialized world, with the potential for severely dis-

lems can be solved if the current cap on income

rupting economic growth.

subject to the Social Security payroll tax is raised or

Yet in exchange for this massive tax increase,

removed altogether. Indeed, public opinion polls

Social Security would gain only an additional

show widespread public support for the idea. Even

seven years of cash-flow solvency. In the end, pro-

President Bush appears open to the idea, although

posals for changing the taxable wage cap are all

only in the context of larger reforms that would

pain and no gain. With a viable alternative--creat-

also include the creation of personal accounts.

ing personal accounts--Congress should not go

However, removing the cap would create the

down this road.

largest tax increase in U.S. history: $1.3 trillion over

Michael Tanner is director of the Cato Institute Project on Social Security Choice and editor of Social Security and Its

Discontents (2004).