The Growth in Social Security Benefits Among the Retirement-Age Population from Increases in the Cap on Covered Earnings

Social Security Bulletin 72(2): 49-61, 2012

13 Pages Posted: 3 May 2012 Last revised: 25 Apr 2015

See all articles by Alan L. Gustman

Alan L. Gustman

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Thomas L. Steinmeier

Texas Tech University - Department of Economics and Geography

Nahid Tabatabai

Dartmouth College - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: May 1, 2012

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.

Keywords: Social Security, Maximum covered earnings, Maximum benefits, tax max, Trends in Social Security benefits, Social Security benefits, Social Security taxes, Health and Retirement Study

Suggested Citation

Gustman, Alan L. and Steinmeier, Thomas L. and Tabatabai, Nahid, The Growth in Social Security Benefits Among the Retirement-Age Population from Increases in the Cap on Covered Earnings (May 1, 2012). Social Security Bulletin 72(2): 49-61, 2012, Available at SSRN: https://ssrn.com/abstract=2038311

Alan L. Gustman (Contact Author)

Dartmouth College - Department of Economics ( email )

6106 Rockefeller Center
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National Bureau of Economic Research (NBER)

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Thomas L. Steinmeier

Texas Tech University - Department of Economics and Geography ( email )

Lubbock, TX 79409-2101
United States
806-742-2201 (Phone)

Nahid Tabatabai

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States

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