The Impact of the Upward Redistribution of Wage Income on Social Security Solvency

Source: Dean Baker, Center for Economic and Policy Research, February 3, 2013

…What is newer and was less widely anticipated is the upward redistribution of income that we have seen over the last three decades. This affects the program in two ways. First it has a direct effect in that a larger share of wage income has gone over the taxable maximum (currently just over $113,000). In 1983, the Greenspan commission set the cap at a level where 90 percent of wage income would be subject to the tax, meaning that 10 percent would escape taxations.

Since that date, the upward redistribution of wages has increased the portion of wage income over the cap to 16.8 percent, with just 83.2 percent of wage income subject to the cap. The share going over the wage cap is projected to rise further, reaching 17.5 percent of wage income in a decade. In this way, the upward redistribution of income directly worsens the finances of the program….