Is the Social Security Tax Cap Disappearing?
How will the U.S. resolve its long-run budget crisis? I’ve long predicted the abolition of the Social Security tax cap. As I told my Public Choice undergrads back in 2011:
I think we’ve likely to eliminate the Social Security payroll tax phase-out for high-income voters. The budgetary situation is gradually becoming more desperate, so before too long the government will have to choose between cutting expensive popular programs (SS, Medicare, defense) or higher taxes. Even people who don’t benefit from these programs see them as socially desirable, so higher taxes are the path of least resistance. Since voters are largely sociotropic, they probably wouldn’t be comfortable explicitly making “the rich” pay the full burden. But it’s easy to frame the SS payroll tax phase-out as the elimination of a loophole rather than class warfare. When you put it that way, even rich voters are likely to admit that this change is the least of available evils.
Only recently, though, did I take a look at what’s been happening to the cap over the last quarter century. In nominal terms, it almost tripled between 1989 and 2014. In real terms, it’s risen by over 25%. Since I became a professor in 1997, the inflation-adjusted cap has grown over 20%. Check it out:
Year
Nominal $ Cap
Real $ Cap
% Change
1989
48,000
48000
1990
51,300
48763
1.6
1991
53,400
48044
-1.5
1992
55,500
48668
1.3
1993
57,600
48916
0.5
1994
60,600
50196
2.6
1995
61,200
49310
-1.8
1996
62,700
49177
-0.3
1997
65,400
49780
1.2
1998
68,400
51258
3.0
1999
72,600
53511
4.4
2000
76,200
54667
2.2
2001
80,400
55605
1.7
2002
84,900
58054
4.4
2003
87,000
57984
-0.1
2004
87,900
57477
-0.9
2005
90,000
57153
-0.6
2006
94,200
57527
0.7
2007
97,500
58336
1.4
2008
102,000
58514
0.3
2009
106,800
61267
4.7
2010
106,800
59684
-2.6
2011
106,800
58735
-1.6
2012
110,100
58814
0.1
2013
113,700
59788
1.7
2014
117,000
60576
1.3
Claiming that events are already proving me right would nevertheless be foolish. The real cap has barely risen since 2002. What we’ve really seen is a massive increase from 1997-2002, with little change before or after. This iron age of cap increases was bipartisan, spanning the late Clinton and early Bush years.
What should we conclude? After a close look at the facts, I’m a little less confident in my long-run forecast. If I’d been following the data closely in 2002, I would have expected rapid cap increases to continue. Indeed, I probably would have given 1:2 odds that the cap would have been abolished by now. As matters stand, I expect the cap to disappear around 2035. As usual, I’m open to bets in the comments.
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