Bush Caving on Social Security Wage Cap?
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Almost from the moment President Bush promised not to raise Social Security taxes, his aides hemmed and hawed on the talk show circuit about whether that promise referred to the Social Security wage cap, or only to the tax rate.
Now we have more evidence, from the President himself, that the wage cap is at risk:
Some hasty stitches:
--The wage cap already increases every single year. See my previous post for a full discussion (or here), but to summarize:
Year.........Wage Cap
1937-50.......$3,000
1960...........4,800
1970...........7,800
1980..........25,900
1990..........51,300
2000..........76,200
2005..........90,000
--The Social Security system is, in toto, already an excruciatingly progressive redistributionist scheme. Never let anyone tell you that "Social Security is regressive because of the wage cap." Flat.Out.Lie. The declining rate of benefit accrual (e.g., someone who earns twice as much wages and pays twice as much FICA taxes receives far less than twice as much Social Security benefits) is an extremely steep progressive income redistribution that totally overwhelms the "regressive" impact of the wage cap (as does the fact that Social Security benefits are now subject to the income tax, which only higher-income households pay anyway). As the cap increases, the progressivity of the entire scheme is of course exacerbated.
--If the Social Security wage cap were eliminated wholesale, in one stroke, then it would constitute the single largest tax increase in American history. So much for the claims that "there is no crisis."
Would scrapping the wage cap be a fair price to pay for private accounts? It depends. But let's at least hope that Bush and the Congress don't rub salt in the wound by asserting that raising or abolishing the wage cap isn't really a "tax increase."
Stay tuned...
Related Posts:
Has Social Security Been a "Success"?
"If-Only Day" -- Part One
Social Security: Read It and Weep
Now we have more evidence, from the President himself, that the wage cap is at risk:
Asked directly, Bush said that he would not rule out raising that cap, though he does not want to see the payroll tax rate go up. The rate is now 12.4 percent of pay, split between workers and employers. "The one thing I'm not open-minded about is raising the payroll tax rate. And all the other issues go on the table."
Some hasty stitches:
--The wage cap already increases every single year. See my previous post for a full discussion (or here), but to summarize:
Year.........Wage Cap
1937-50.......$3,000
1960...........4,800
1970...........7,800
1980..........25,900
1990..........51,300
2000..........76,200
2005..........90,000
--The Social Security system is, in toto, already an excruciatingly progressive redistributionist scheme. Never let anyone tell you that "Social Security is regressive because of the wage cap." Flat.Out.Lie. The declining rate of benefit accrual (e.g., someone who earns twice as much wages and pays twice as much FICA taxes receives far less than twice as much Social Security benefits) is an extremely steep progressive income redistribution that totally overwhelms the "regressive" impact of the wage cap (as does the fact that Social Security benefits are now subject to the income tax, which only higher-income households pay anyway). As the cap increases, the progressivity of the entire scheme is of course exacerbated.
--If the Social Security wage cap were eliminated wholesale, in one stroke, then it would constitute the single largest tax increase in American history. So much for the claims that "there is no crisis."
Would scrapping the wage cap be a fair price to pay for private accounts? It depends. But let's at least hope that Bush and the Congress don't rub salt in the wound by asserting that raising or abolishing the wage cap isn't really a "tax increase."
Stay tuned...
Related Posts:
Has Social Security Been a "Success"?
"If-Only Day" -- Part One
Social Security: Read It and Weep
Posted by KipEsquire on
16 February 2005
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