How will the U.S. resolve its long-run budget crisis? I’ve long predicted the abolition of the Social Security tax cap. As I told my Public Choice undergrads back in 2011:
I think we’ve likely to eliminate the Social Security payroll tax phase-out for high-income voters. The budgetary situation is gradually becoming more desperate, so before too long the government will have to choose between cutting expensive popular programs (SS, Medicare, defense) or higher taxes. Even people who don’t benefit from these programs see them as socially desirable, so higher taxes are the path of least resistance. Since voters are largely sociotropic, they probably wouldn’t be comfortable explicitly making “the rich” pay the full burden. But it’s easy to frame the SS payroll tax phase-out as the elimination of a loophole rather than class warfare. When you put it that way, even rich voters are likely to admit that this change is the least of available evils.
Only recently, though, did I take a look at what’s been happening to the cap over the last quarter century. In nominal terms, it almost tripled between 1989 and 2014. In real terms, it’s risen by over 25%. Since I became a professor in 1997, the inflation-adjusted cap has grown over 20%. Check it out:
|
Year
|
Nominal $ Cap
|
Real $ Cap
|
% Change
|
|
1989
|
48,000
|
48000
|
|
|
1990
|
51,300
|
48763
|
1.6
|
|
1991
|
53,400
|
48044
|
-1.5
|
|
1992
|
55,500
|
48668
|
1.3
|
|
1993
|
57,600
|
48916
|
0.5
|
|
1994
|
60,600
|
50196
|
2.6
|
|
1995
|
61,200
|
49310
|
-1.8
|
|
1996
|
62,700
|
49177
|
-0.3
|
|
1997
|
65,400
|
49780
|
1.2
|
|
1998
|
68,400
|
51258
|
3.0
|
|
1999
|
72,600
|
53511
|
4.4
|
|
2000
|
76,200
|
54667
|
2.2
|
|
2001
|
80,400
|
55605
|
1.7
|
|
2002
|
84,900
|
58054
|
4.4
|
|
2003
|
87,000
|
57984
|
-0.1
|
|
2004
|
87,900
|
57477
|
-0.9
|
|
2005
|
90,000
|
57153
|
-0.6
|
|
2006
|
94,200
|
57527
|
0.7
|
|
2007
|
97,500
|
58336
|
1.4
|
|
2008
|
102,000
|
58514
|
0.3
|
|
2009
|
106,800
|
61267
|
4.7
|
|
2010
|
106,800
|
59684
|
-2.6
|
|
2011
|
106,800
|
58735
|
-1.6
|
|
2012
|
110,100
|
58814
|
0.1
|
|
2013
|
113,700
|
59788
|
1.7
|
|
2014
|
117,000
|
60576
|
1.3
|
Claiming that events are already proving me right would nevertheless be foolish. The real cap has barely risen since 2002. What we’ve really seen is a massive increase from 1997-2002, with little change before or after. This iron age of cap increases was bipartisan, spanning the late Clinton and early Bush years.
What should we conclude? After a close look at the facts, I’m a little less confident in my long-run forecast. If I’d been following the data closely in 2002, I would have expected rapid cap increases to continue. Indeed, I probably would have given 1:2 odds that the cap would have been abolished by now. As matters stand, I expect the cap to disappear around 2035. As usual, I’m open to bets in the comments.