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.

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Aggregator Full Text

Authors

Gustman AL, Steinmeier TL, Tabatabai N

Institution

Dartmouth College, USA.

Source

Social security bulletin 72:2 2012 pg 49-61

MeSH

Aged
Cohort Studies
Female
Humans
Insurance Benefits
Male
Middle Aged
Models, Econometric
Public Policy
Salaries and Fringe Benefits
Social Security
Taxes
United States

Pub Type(s)

Journal Article
Research Support, U.S. Gov't, Non-P.H.S.

Language

eng

PubMed ID

22799138