RE: Raising the Wage Base

[National Dialogue Moderator <moderator>]

	There are any number of formulations for increasing the taxable
wage base.  Today, employers and workers are each taxed on earnings up
to $72,600.  That cap on taxed earnings could be increased for both
employers and workers or just one of the two.  Also, the wage base could
be raised for purposes of calculating benefits, or it could be left at
today's level.  For us, the bottom line is that a wage base increase
should be part of any ultimate reform package.  

	How you change the wage base and to what level will determine
how much of the shortfall gets covered.  Let me offer a few examples
that should provide a yardstick for measuring the effect of a cap
increase.  If the cap on wages subject to the payroll tax were
eliminated, but just for employers and with no change in how benefits
are calculated, then more than half of the shortfall would be
eliminated.  If the taxable wage base were increased for both employers
and workers (with a commensurate increase in the wage base for benefit
calculation purposes) so that 90 percent of earnings in covered
employment were taxed (about the first $100,000 in earnings in today's
dollars), then about one-fourth of the shortfall would be eliminated.

	Bob Rosenblatt asked whether the impact of a cap increase on
affluent voters' attitudes toward the system is a concern.  The simple
answer is yes, but raising the cap also has to be looked at in the
context of the economy we've been living in for the last few decades. 
In particular, we have seen the fruits of economic growth directed
toward the already-well-off, with little left for a great many workers. 
For example, real hourly wages for the typical worker were lower in 1998
than they were at the peak of the last business cycle in 1989.  This is
particularly true for the typical male worker.  The opposite is true for
high earners.

	It's little wonder, then, that one factor contributing to Social
Security's projected shortfall is that the share of total wages in the
economy earned by Americans who earn more than the wage cap has been
increasing since 1984 and the actuaries project that it will continue
for the next decade. 


Gerry Shea
AFL-CIO