The growth in Social Security benefits among the retirement-age population from increases in the cap on covered earnings

TitleThe growth in Social Security benefits among the retirement-age population from increases in the cap on covered earnings
Publication TypeJournal Article
Year of Publication2012
AuthorsGustman, AL, Steinmeier, TL, Tabatabai, N
JournalSoc Secur Bull
Volume72
Issue2
Pagination49-61
KeywordsPublic Policy, Retirement Planning and Satisfaction, Social Security
Abstract

Analysts have proposed raising the maximum level of earnings subject to the Social Security payroll tax (the tax max ) to improve long-term Social Security Trust Fund solvency. This article investigates how raising the tax max leads to the leakage of portions of the additional revenue into higher benefit payments. Using Health and Retirement Study data matched to Social Security earnings records, we compare historical payroll tax payments and benefit amounts for Early Boomers (born 1948-1953) with tax and benefit simulations had they been subject to the tax max (adjusted for wage growth) faced by cohorts 12 and 24 years older. We find that 43.2 percent of the additional payroll tax revenue attributable to tax max increases affecting Early Boomers relative to taxes paid by the cohort 12 years older leaked into higher benefits. For Early Boomers relative to those 24 years older, we find 53.5 percent leakage.

Notes

Gustman, Alan L Steinmeier, Thomas L Tabatabai, Nahid Research Support, U.S. Gov't, Non-P.H.S. United States Soc Secur Bull. 2012;72(2):49-61.

Endnote Keywords

Social security/payroll tax/Public policy/retirement planning/taxation

Endnote ID

69572

Citation Key7736