Social Security cannot afford to pay all of the benefits it has promised. Beginning in 2017, it will run cash deficits that get bigger every year.
Opponents of personal accounts in Social Security often propose eliminating the wage cap as a solution to the crisis of younger workers’ bad rate of return from the current system. This ignores several key points: first, payroll taxes are tied to future benefit claims, so raising the cap also raises benefits in the future. Second, if the cap was raised but benefits were held steady, this would further worsen Social Security’s already-awful rate of return for younger workers. Finally, and most devastating to the economy and younger workers, eliminating the cap would represent the largest tax increase in two decades. In real dollars, it would be bigger than the Greenspan Social Security tax increase and the Clinton tax hike.
The system has a problem, and we need to fix it. Personal accounts are the solution.
Eliminating the Wage Cap Would Be the Largest Tax Increase in History
Source: Cato Institute calculations; Tax Foundation; Heritage Foundation