Bruce Bartlett

Although President Bush has said that he would not increase Social Security taxes to pay for private accounts, some of his aides are floating the idea of a stealth tax increase on the wealthy, nevertheless. On Dec. 19, White House Chief of Staff Andrew Card and Treasury Secretary John Snow were asked on different Sunday talk shows whether the administration would support an increase in the Social Security wage cap, and both pointedly refused to rule it out.
 
Since the Social Security system was created, the payroll tax has applied only to a portion of total wages. Originally, the limit was $3,000, which Congress raised from time to time. Since 1972, the wage base has been indexed and rises automatically each year. This year, it was $87,900. Starting on Jan. 1, the taxable wage base will rise to $90,000. Thus, the maximum tax one can pay will rise by $260.

 When Franklin D. Roosevelt put this system into place, it wasn't out of love for the wealthy. Rather, it was in order to maintain some reasonable relationship between taxes and benefits for everyone who pays into Social Security. Because one's benefits are a function of one's covered wages, having no cap would either lead to much higher benefits for high-income workers than would be politically tolerable or benefits that were minuscule in relation to taxes paid.

 As it is, there is already an increasingly tenuous relationship between taxes paid and benefits received by high-income workers. According to the Congressional Research Service, in 1980 a retiree with lifetime earnings at or above the Social Security wage cap got back all of his and his employer's contributions in 3.1 years. By 2000, it took 24.9 years, and by 2010 it will take 35.3 years. Under current projections, a high-income worker retiring in 2030 will need 55 years worth of benefits to get back all his contributions.

 If the cap is removed and benefits are limited to current levels, the return for high- income workers will become nonexistent. This means that Social Security will no longer be a pension system to which one earns benefits, but will instead be nothing but a welfare program. If the wage cap is raised and the benefit formula is unchanged, then higher future benefits will eat up all the revenue gain in the long run.


Bruce Bartlett

Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.

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