December 17, 2004
Social Security Bull$#%t

Here's William Novelli of AARP discussing his preferred alternative to private accounts in Social Security on NPR ("Morning Edition" 12/16):

One thing you can do is raise the cap on the payroll tax. Right now when you go up to $88,000, then you stop paying Social Security taxes. If you bring it up to where it has been sort of traditionally, you'd raise it to about $140,000 or thereabouts, and that would solve a good percentage of the problem.

This just didn't smell right to me--my impression is that the upper limit of earnings subject to the payroll tax has been increasing over time rather than deceasing. So I went back to Harvey Rosen's public economics text (p. 198) and found the tax threshold for several years and obtained CPI data from the web to calculate inflation adjusted earnings thresholds:

Year Taxable Earnings Cap CPI Adjusted Earnings Cap
1937 3000 15.7 35,053
1950 3000 23.7 23,336
1960 4800 29.1 30,351
1970 7800 38.8 36,990
1980 29700 82.4 66,320
1990 51300 130.7 72,220
2000 76200 172.2 81,422
2003 87000 184 87,000

My instincts were indeed correct--even adjusting for inflation, the taxable earnings cap is now higher than in any of the previous years in the table (and presumably all other previous years). (Sorry for the difficult to read formatting--the first number in each row is the year, the second is the nominal earnings cap for that year, the third is that year's value of the CPI, and the fourth is the inflation adjusted earnings cap. For example, in 1990 the taxable earnings limit was 51,300, the CPI was 130.7, and the inflation adjusted taxable earnings limit was 72,220.)

It is this kind of outright misinformation that makes me skeptical about the prospects for meaningful Social Security reform of any kind.

ADDENDUM: Here's a previous post on Social Security. Andrew Samwick's VoxBaby is also a good source; here's a recent post.

Posted by E. Frank Stephenson at 02:18 PM  ·  TrackBack (107)

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith

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