Abstract
The 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.
Acknowledgement
I would like to thank Frank Caliendo, Matt Chambers, Jim Feigenbaum, Aspen Gorry, Juergen Jung, and participants at the 2014 SEA Meetings and the 2015 NTA Meetings for their useful comments and suggestions.
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Artikel in diesem Heft
- Advances
- Does microfinance reduce poverty? Some international evidence
- Exchange rate policy and the role of non-traded goods prices in real exchange rate fluctuations
- Democracy and income: taking parameter heterogeneity and cross-country dependency into account
- Pass-through of imported input prices to domestic producer prices: evidence from sector-level data
- Economic policy uncertainty and household inflation uncertainty
- Corruption, fiscal policy, and growth: a unified approach
- Monetary policy and energy price shocks
- Government education expenditures and economic growth: a meta-analysis
- Has the forecasting performance of the Federal Reserve’s Greenbooks changed over time?
- Life-cycle consumption, precautionary saving, and risk sharing: an integrated analysis using household panel data
- Can removing the tax cap save Social Security?
- A non-monotonic relationship between public debt and economic growth: the effect of financial monopsony
- The Euler equation around the world
- Structural change and non-constant biased technical change
- Contributions
- Trade and growth in a model of allocative inefficiency
- Macroeconomic Shocks and Corporate R&D
Artikel in diesem Heft
- Advances
- Does microfinance reduce poverty? Some international evidence
- Exchange rate policy and the role of non-traded goods prices in real exchange rate fluctuations
- Democracy and income: taking parameter heterogeneity and cross-country dependency into account
- Pass-through of imported input prices to domestic producer prices: evidence from sector-level data
- Economic policy uncertainty and household inflation uncertainty
- Corruption, fiscal policy, and growth: a unified approach
- Monetary policy and energy price shocks
- Government education expenditures and economic growth: a meta-analysis
- Has the forecasting performance of the Federal Reserve’s Greenbooks changed over time?
- Life-cycle consumption, precautionary saving, and risk sharing: an integrated analysis using household panel data
- Can removing the tax cap save Social Security?
- A non-monotonic relationship between public debt and economic growth: the effect of financial monopsony
- The Euler equation around the world
- Structural change and non-constant biased technical change
- Contributions
- Trade and growth in a model of allocative inefficiency
- Macroeconomic Shocks and Corporate R&D