In the Social Security debate, readers will frequently encounter arguments which provide the illusion of research by comparing unrelated statistics.
“In 1983, 91% of earnings were subject to Social Security payroll taxes. In 2009, only 83% of earnings were taxed.”
~CBO, Social Security Policy Options, p. 18‐19
In this case, the false conclusion is that the wages of top earners have grown more rapidly than the wages of the majority. The illusion is created by comparing statistics which appear the same but are really completely unrelated. The fact is that earnings subject to Social Security payroll tax in 1983 is not comparable with that of 2009.
The fact is that earnings subject to Social Security payroll tax in 1983 was not the same as it was in 1987. Changes to the tax-code in 1986 changed the way that high-earning taxpayers classified income. Prior to 1986, high-earners had an incentive to report income on corporate returns which are invisible to the "Earnings Subject To Social Security". After the tax changes of 1986 removed those incentives, more above-the-cap wages filtered through to the equation. It isn't the the rich got richer, it is the US government introduced an incentive to call compensation "wages" rather than what it was previously was called.
There are numerous other incentives and disincentives which make "Earnings Subject To Social Security" incompatible over time. In the 1990s, stock options became a currency of choice. In 2000, the Bush Tax Cuts altered the compensation landscape. Comparing wages across different income tax regimes is pointless.
It is highly unlikely that wages above the cap were able to keep up with the increases in the cap. According to the Social Security Administration, the earnings cap on wages subject to Social Security was $35,700 in 1983. According to BLS(BLS Inflation Calculator), the cap would be $82,470.23 in 2012 after inflation. Today wages subject to Social Security reach $110,100 roughly 33% more than the inflation adjusted cap of 1983.
The argument makes a conclusion about wage growth, based on a concept of 'wages' is changes overtime. It just isn't meaningful. In my experience, wages of top earners have grown rapidly, but you wouldn't know it based on earnings subject to Social Security taxes. If the conclusion is right, it has more to do with luck than research.
