April 11th, 2024 2 Minute Read Press Release

New Issue Brief: 6 Problems with Eliminating the Social Security Tax Cap

NEW YORK, NY — Social Security’s looming shortfall is a top issue ahead of the 2024 election. Historically, when pressed on how to avoid deficits, progressives and an increasing number of non-progressives lead us to believe the answer is simple and obvious: apply Social Security’s 12.4% tax rate to all wages, rather than continue to limit this tax to an individual’s first $168,600 earned annually. This policy is sold as a singular cure-all that would bring permanent Social Security surpluses and thus avert the need for any benefit or eligibility age hikes. 

In a new Manhattan Institute issue brief, senior fellow Brian Riedl exposes the insufficiency of such a proposal by highlighting six drawbacks to uncapping the tax. These include: 

  1. Uncapping Social Security’s wage base and taxes would also uncap the benefits that high-earning workers could earn; 
  2. Eliminating the cap would only close half of Social Security’s long-term shortfall; 
  3. Social Security would quickly return to deficits; 
  4. Canceling the accompanying benefit hike does not save much; 
  5. It would use up nearly all available “tax-the-rich" revenues; 
  6. Wealthy baby boomers may not be the most deserving recipients of the limited remaining tax-the-rich revenues.  

While some changes to the Social Security tax cap should certainly be on the table, eliminating the cap would provide smaller-than expected savings while imposing a substantial, mostly unanticipated burden on other federal funding priorities. No single policy—including lifting the Social Security tax cap—can fix the entire shortfall without the need for other savings proposals. And while fully eliminating the cap could close half of the long-term shortfall, advocates should note that such a policy would dramatically raise taxes not just on the rich but also the upper-middle class. It would also rob nearly all other progressive priorities and the larger Medicare shortfalls of their largest potential tax-the-rich funding mechanism. Generational equity requires scaling back the unaffordable promises made to current-and-future retirees, rather than maxing out the taxes on working families.

Click here to view the full issue brief. 


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