I received a thoughtful comment regarding my previous post on the Social Security taxable earnings limit. One of Bob's Capital colleagues wonders if the AARP President might have been referring to adjusting the taxable earnings limit by wages rather than prices (recall that I used the CPI in my previous post). The sensible premise of his suggestion is that wages typically rise faster than prices.

To investigate this possibility, I repeated my analysis using two measures of wages: average gross hourly manufacturing earnings (obtained from Table 3.B3 of the 2003 Annual Statistical Supplement) and the average annual wage (obtained from Table 2.A9 of the same publication). There are a few warts in matching the data to the years I used previously, but the conclusion remains the same. The current taxable earnings limit is at least as high as in previous years; even making some generous assumptions about the mismatched wage data wouldn't get one close to having a previous year's limit now equivalent to $140k.

Year TaxableCap AdjforHourlyWages AdjforAnnualWages
1937 3,000 77,419 not avail
1950 3,000 33,333 37,101
1960 4,800 33,103 38,517
1970 7,800 37,143 40,543
1980 29,700 65,365 76,319
1990 51,300 75,789 78,447
2000 76,200 84,784 76,200
2003 87,000 87,000 not avail

I can think of one additional possibility: Perhaps Mr. Novelli has something like median family income in mind. It might have grown over time for reasons above and beyond inflation or real wage growth; an example would be an increasing share of two earner families. Note, however, using median family income to adjust the maximum taxable earnings cap would be something of an apples-oranges issue. That is, the earnings cap pertains to individual earnings--in two earner families each spouse's income is subject to taxation up to the taxable earnings cap regardless of total family earnings.