Should We be Addressing Social Security Funding Problems at the Front End? New CAP Study

George Washington University Law Professor Naomi Cahn sent us a link to an interesting study that seeks to demonstrate the impact of income equality — and wage stagnation for low and middle income workers — on the long-term solvency of Social Security. 

In a release accompanying the release of its study, the  Center for American Progress (CAP) explains: 

“Specifically, CAP’s issue brief finds that the trust funds would be $753.8 billion larger had the average worker’s wages kept pace with productivity growth between 1983 and 2013, thereby reducing the expected 75-year shortfall of the trust funds by 6.8 percent. The brief also shows that the trust funds would be greater by more than $1.1 trillion had the maximum taxable wage base remained fixed at 90 percent of earnings over the same time period, reducing the expected 75-year shortfall by 10.1 percent. Both scenarios would have added years of additional solvency to the Social Security trust funds. These findings come on top of Social Security trustees’ projections that, looking ahead, freezing the taxable wage base at 90 percent today would on its own close more than one-quarter of the projected 75-year shortfall….

CAP’s brief outlines how, as a result of the [existing] cap on taxable earnings–$118,500 for 2015—Social Security’s funding is tied directly to the full wages that low- and middle-income workers earn—but not to the full wages that higher-earning workers receive. The brief finds that in 2013, the top 1 percent of earners took home nearly the same share of the nation’s total wage income as the entire bottom half of workers. As a result, income has shifted away from workers whose full earnings are subject to payroll taxes and toward high-income workers whose additional dollars are exempt.”

The CAP report is the work of Rebecca Vallas (a former Borchard Fellow), Christian Weller, Rachel West, and Jackie Odum.Thanks for sharing this report, Naomi!