April 25, 2005 | News Releases on Social Security
WASHINGTON, APRIL 25, 2005-Among
the more popular proposals for solving the Social Security funding
shortfall is to raise the cap-now at $90,000-on income subject to
the tax that funds the federal retirement program.
Raising the cap to $140,000 or eliminating it altogether, supporters say, would shift the burden for solving America's Social Security crisis to those who can best afford it and benefit most from it. But, according to a new paper from The Heritage Foundation, not only would lifting the cap not work, it would make matters much worse, even-perhaps even especially-for workers who make less than $90,000.
Raising the cap, which would constitute the largest tax increase in U.S. history, would weaken the economy, triggering the loss of nearly 1 million jobs and more than $55 billion in personal savings by 2015, say Rea Hederman, Tracy Foertsch and Kirk Johnson of Heritage's Center for Data Analysis.
Moreover, despite being the largest tax increase in U.S. history-eliminating the cap would raise $607 billion over five years and more than $1.4 trillion over 10-this initiative would delay the date at which Social Security begins to pay out more than it takes in by just seven years, to 2025. In addition, it would increase the tax rate on labor income to more than 50 percent for the first time since the 1970s and cost the 9.8 million workers affected an average of $8,412 in the first year alone.
It would be different, the experts say, if we hadn't tried this before. But Congress has increased the Social Security payroll tax rates 23 times-about once every three years since the program began in 1937-yet the system continues to slide toward bankruptcy.
"Even if we put a million jobs at risk, enact the largest tax increase in U.S. history and add $66 billion to the federal budget deficit because of slower economic growth, we still will be right back here addressing this same problem in less than 20 years.
"In short, eliminating the Social Security wage cap will do little good and much economic harm."