Thursday, March 24, 2011

New paper: The Case against Raising the Social Security Tax Max

I have a new paper in AEI's Retirement Policy Outlook series titled "The Case against Raising the Social Security Tax Max." Here's some background:

With Social Security deficits increasing and the US population aging, policymakers today face a choice. If they raise Social Security's maximum taxable wage--a common proposal--individuals will respond by working and saving less, which weakens the economy and does not fix the problem. Instead, we should reduce Social Security benefits for middle- and high-income earners to encourage more working and saving--and free up the government to focus on the daunting challenges of Medicare and Medicaid.

Key points in this Outlook:

  • Eliminating Social Security's maximum taxable wage ("tax max") is an alluring solution to Social Security's problems, promising to restore long-term solvency with few effects on the typical worker.
  • But a higher tax max discourages work and saving and fixes Social Security's long-term problems only on paper.
  • A better solution is to reduce Social Security benefits for middle and high earners while encouraging greater individual saving and longer work lives.

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