lion and the cost of eliminating it would be an
The other alternative would be to increase
astounding $1.3 trillion in new taxes.10 To put
the tax cap without allowing workers to
accrue any additional benefits, turning Social
this in perspective, Figure 2 compares the pro-
Security into even more of a welfare program
posed tax hike to the last three major tax
than it is today. As a result, even some sup-
hikes: the 1982 increase in Social Security tax
porters of traditional Social Security have
rates, the 1990 Omnibus Budget Reconcili-
been reluctant to embrace lifting the cap,
ation Act (wherein President George H. W.
fearing that to do so would undermine the
Bush broke his "read my lips" pledge), and the
program's image as a broad-based, contribu-
1993 Omnibus Reconciliation Act of 1993
tory social insurance program. Bill Clinton
(the Clinton tax hike of 1993).
warned against this approach at a 1998
As bad as that would be in the aggregate,
forum hosted by the Concord Coalition and
it would be even worse for individual work-
AARP, pointing out that this change would
ers. A worker earning $100,000 per year
make Social Security "an actuarially negative
would directly or indirectly pay $1,240 more
investment for the people involved, where
in taxes each year.
you're just taxing people's payroll far more
Moreover, as the above example shows,
than they'll ever get back, and they're just
raising the tax cap would not just impact the
Over 10 years, the
subsidizing the system."9
super rich, as is often portrayed, but would fall
cost of raising the
most heavily on the upper middle class.
The Consequences of
Indeed, some 9.2 million Americans would see
cap would be
Raising the Cap
their taxes increased. Roughly three-quarters
$384 billion and
of those are managers or other professionals
the cost of elimi-
such as doctors, lawyers, and engineers. But
Elimination of the payroll tax cap would be
roughly 16 percent work in sales or office
the largest tax increase in U.S. history--more
nating it would
occupations, and the remainder includes
than $472 billion in the first five years alone.
be an astounding
teachers, nurses, truck drivers, farmers, police
Even raising the cap to $150,000 per year
officers, and others.11 Nearly 60 percent of
would amount to an overall tax hike of $106
$1.3 trillion in
billion over the first five years. Over 10 years,
those workers are between the ages of 35 and
new taxes.
the cost of raising the cap would be $384 bil-
55, and 20 percent are over 55 and nearing
Figure 2
Five-Year Cost of Tax Increases
472
500
450
400
329
350
292
300
215
250
200
150
100
50
0
1990 O mnibus
1993 Omnibus Eliminat ing Cap
1982 Social
Security Tax
Increase
Source: Cato Institute calculations; Tax Foundation; Heritage Foundation.
4