Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Can removing the tax cap save Social Security?

Can removing the tax cap save Social Security? AbstractThe maximum amount of earnings in a calendar year that can be taxed by Social Security is currently set at $118,500. In this paper, I examine if removing this cap can solve Social Security’s future budgetary problems. I find that when this cap is removed, benefits need to decline by less than 4% to keep Social Security solvent, compared to by almost 12% when the cap is held fixed at its current level. Households for whom the cap expires respond by working and saving less, which reduces labor supply, capital stock, and output, and also reverses some of the initial expansion in Social Security’s revenues. Elimination of the cap alters the pattern of redistribution implicit in Social Security, and also imposes larger distortions on labor supply and saving, which reduces overall welfare. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The B.E. Journal of Macroeconomics de Gruyter

Can removing the tax cap save Social Security?

The B.E. Journal of Macroeconomics , Volume 17 (2): 1 – Jul 4, 2017

Loading next page...
 
/lp/de-gruyter/can-removing-the-tax-cap-save-social-security-6bNmnnT1GI

References

References for this paper are not available at this time. We will be adding them shortly, thank you for your patience.

Publisher
de Gruyter
Copyright
©2017 Walter de Gruyter GmbH, Berlin/Boston
ISSN
1935-1690
eISSN
1935-1690
DOI
10.1515/bejm-2016-0091
Publisher site
See Article on Publisher Site

Abstract

AbstractThe maximum amount of earnings in a calendar year that can be taxed by Social Security is currently set at $118,500. In this paper, I examine if removing this cap can solve Social Security’s future budgetary problems. I find that when this cap is removed, benefits need to decline by less than 4% to keep Social Security solvent, compared to by almost 12% when the cap is held fixed at its current level. Households for whom the cap expires respond by working and saving less, which reduces labor supply, capital stock, and output, and also reverses some of the initial expansion in Social Security’s revenues. Elimination of the cap alters the pattern of redistribution implicit in Social Security, and also imposes larger distortions on labor supply and saving, which reduces overall welfare.

Journal

The B.E. Journal of Macroeconomicsde Gruyter

Published: Jul 4, 2017

References