90 percent of earnings. Statement of the National
nest egg of real, inheritable wealth. It would
Committee to Preserve Social Security and Medicare
not improve Social Security's rate-of-return
to the President's Commission to Strengthen Social
for younger workers.
Security, September 6, 2001; AFL-CIO, "Social
Security: Options to Strengthen Social Security for
At the same time, proposals for personal
Working Families," www.aflcio.org/socialsecurity/
accounts would give workers ownership and
strength/htm.
control over their retirement funds. And, com-
bined with measures to restrain benefit growth,
8. This is only a theoretical linkage. The Supreme
Court ruled in the case of Flemming v. Nestor that
they can do far more for Social Security's sol-
there is no direct link between contributions and
vency than would eliminating the cap.
benefits. However, the current AIME/PIA benefit
In the end, proposals for changing the tax-
formula calculates benefits based on all wage
able wage cap are all pain and no gain. With a
income subject to the payroll tax.
viable alternative--creating personal accounts--
9. Quoted in Neil Howe and Richard Jackson, "Can
Congress should not go down this road.
Hiking the Max Tax Save Social Security?" Concord
Coalition Facing Facts Alert, September 10, 1998.
Notes
10. Cato Institute calculations based on informa-
tion contained in Memorandum from Alice Wade
1. For example, a USA Today/CNN/Gallup poll
and Chris Chaplain to Steve Goss, "Estimated
showed that roughly two-thirds of voters supported
OADI Long-Range Financial Effects of Several
removing the cap. Susan Page, "Poll: Tap Wealthy on
Provisions Requested by the Social Security
Social Security," USA Today, February 8, 2005.
Advisory Board," Social Security Administration,
Office of the Chief Actuary, February 7, 2005,
2. Mike Allen, "Idea to Raise Social Security Wage
Figures 1517.
Limit Criticized," Washington Post, February 18,
2005.
11. Bureau of the Census, CPS Annual Social and
Economic Supplement. http://pubdb3.census.gov/
3. Laura Haltzel, "Social Security: Raising or
macro/032004/perinc/toc.htm.
Eliminating the Taxable Earnings Base,"
Congressional Research Service, January 20, 2004.
12. Ibid.
4. Social Security Administration, "History of the
13. Alan Reynolds, "Kerry's Social Security Plan,"
OASDI Contribution and Benefit Base,"
Washington Times, October 2, 2004.
www.ssa.gov/OACT/COLA/cbb.html.
14. Ibid.
5. Medicare payroll taxes were originally subject
to the same cap as Social Security taxes. However,
15. Gene Steuerle, "Does the Social Security Tax
in 1990, Congress raised the wage base for
Discriminate against the Self-Employed?" Tax
Medicare taxes to $120,000, and in 1993 removed
Analysts: Economic Perspective, May 30, 1994.
it entirely.
16. Edward Prescott, "Why Do Americans Work
6. D. Mark Wilson, "Removing Social Security's
So Much More than Europeans?" Federal Reserve
Tax Cap on Wages Would do More Harm than
Bank of Minneapolis, 2003.
Good," Heritage Foundation Center for Data
Analysis Report no. 01-07, October 17, 2001.
17. Ana M. Aizcorbe, Arthur B. Kennickell, and
Kevin B. Moore, "Recent Changes in U.S. Family
7. L. Josh Bivens, "Removing the Social Security
Finances: Evidence from the 1998 and 2001
Earnings Cap Virtually Eliminates Funding Gap,"
Survey of Consumer Finances," Federal Reserve
Economic Policy Institute Economic Snapshots,
Bulletin 89 (January 2003): 132.
February 15, 2005; Testimony of Hans Reimer
before the President's Commission to Strengthen
18. Wilson.
Social Security, October 18, 2001; Heidi Hartmann,
Catherine Hill, and Lisa Witter, "Strengthening
19. Bivens.
Social Security for Women," National Council of
Women's Organizations, Task Force on Women and
20. Executive Office of the President of the United
Social Security, July 1999, p. 11. More mainstream
States, Budget of the United States Government, Fiscal
organizations such as the AARP, the AFL-CIO, and
Year 2000, Analytic Perspectives, p. 337.
the National Committee to Preserve Social Security
and Medicare have advocated increasing the cap to
21. "2005 Report of the Board of Trustees of the
11