RE: Raising the Wage Base

[National Dialogue Moderator <moderator>]

Taxing wages in excess of the current limit of $72,600 may seem like an 
equitable solution. Why not just tax the wealthy? There are a couple of 
reasons why this is the wrong solution. First, it is contrary to one of the 
fundamental principles underlying our Social Security system -- equity. 
Second, it will destroy support for the program among middle and upper 
income workers which could lead to its demise.

Social Security is based on two principles -- benefit adequacy and equity. 
Since the beginning, Social Security has always provided positive rate of 
return on every worker's contributions. The benefit formula is designed so 
that beneficiaries will be entitled to a benefit at least equal to the 
taxes they and their employers paid over their lifetime. To date, 
beneficiaries have received a positive rate of return (or interest) on 
those tax contributions as well. If the wage base is uncapped entirely, or 
raised substantially, that will no longer be true. Higher income workers 
will pay more in taxes than they collect in benefits (even after their 
benefits are increased to reflect their additional contributions). This 
violates the equity principle.

It will also undermine support for the program. The fear is that higher 
income workers (and those who see themselves growing into that category) 
will see the "deal" getting worse and put pressure on Congress to let them 
opt out of the program. It will start looking more like a welfare system 
than a social insurance system. If Social Security loses the support of the 
middle class it will no longer enjoy its protected status in political 
terms. This is the reason many liberal supporters of the system oppose 
large increases in the wage base.

Finally, there is the whole issue of payroll taxes. Why would we want to 
increase a tax on work? Uncapping the wage base, or even increasing it to 
$100,000, would be a huge tax increase -- 12.4% of every dollar earned. Do 
we really want to impose more costs on labor? Admittedly, it's at the high 
end of the income spectrum, but employers will respond by trying to keep 
salary costs down through lower wages or fewer high-paid jobs.

Ann Combs