The New York Times Room for Debate section covers an open discussion about increasing the amount of wages subject to payroll taxes, also called the wage base. 

The best material comes from Andrew Biggs, who offers a summary of the reasons not to raise the wage base.

1. Roosevelt wouldn’t want it, since the cap helps distinguish Social Security from a “welfare” program. Under his administration’s original plans, high earners wouldn’t even have participated in Social Security, much less paid multiples more in taxes than they’ll collect in benefits. Come on, lefties, let’s honor FDR’s legacy.
2. The cap isn’t unusually low: today, 85% of wages are hit by Social Security taxes. The average since 1935? Eighty-four percent.
3. While coverage has fallen from 90% since the mid-1980s, research points to health care as a major culprit. When employers’ health outlays rise they reduce wages for employees, with middle class workers hit the most. The solution isn’t to tax the rich more, it’s to address health care costs.
4. Other countries have lower caps: in Canada payroll taxes are capped at the average wage, in the UK at 1.15 times, and in Japan at 1.5 times the average. Social Security’s tax ceiling is 2.9 times the average wage in US.
5. It’s a fat tax increase. Today’s top federal tax rate on earned income is about 45%. Adding state income taxes boosts it to around 50%. Eliminating the tax max effectively raises the top tax rate by around 12 percentage points. If I wanted that I’d move to Scandinavia. Except their taxes are lower…
6. And that’s before we’ve done anything to fix Medicare and Medicaid. Think the Left won’t ask for higher taxes there, too?
7. And we wouldn’t even collect all that money. Economists Emmanuel Saez and Jeffrey Liebman — no conservatives — concluded that, due to income shifting and behavioral responses, we’d collect less than 60% of what static projections claim.
8. Using more aggressive but still reasonable assumptions regarding economic behavior, such as from Harvard’s Marty Feldstein, net revenue gains would essentially be zero.
9. And to the degree we did raise extra money, Congress would spend it — it’s not going to be there to pay the bills in the future.

Sen. Bernie Sanders (I-Vt.) reintroduced legislation which would increase the amount of wages subject to payroll taxes.   His website provides material describing the bill, here.

In the five years that Sen. Sanders has pushed this legislation, the core problem with it has not changed.  This legislation diverts tax resources away from deficit reduction to Social Security.  Every penny collected under this tax provision could be raised as income taxes that would go to the general fund to either reduce the deficit or reduce the outstanding debt.  This idea is no different than putting your 401K contribution on your child’s credit card.

Over that time, though, the Senator’s promises have severely deteriorated.  Originally he promised that this change would make the system ‘solvent’ for 75 years.  Now he is promising to make the system ‘strong’ for 50 years.   Instead of basing his statement on current information, the news release points to research that is two years old.  He uses old data because Social Security has lost trillions of dollars of solvency over the past two years.  (To understand the difference between 'Fixed' and 'Solvent', here) 

The one thing that has not changed is the willingness of Sen. Sanders to support his ideas with word-games and sound-bites that have no factual basis.  His unique definition of words like ‘pay’, ‘owe’, and ‘cost’ tells the reader that not even the system’s strongest supporters actually believe in the system anymore.  If he still believed in the system, he would not be compelled to mischaracterize what the Trustees have said about the system.

 “Through good times and bad, Social Security has paid out every benefit owed to every eligible American”

Sen. Sanders can make this claim because Social Security can reduce what it owes to beneficiaries.  Social Security hasn’t paid out every benefit promised – just every benefit owed.  In 1983 Congress reduced what Social Security owes to people – substantially.  People who were owed benefits at 65 are now owed benefits at 67.  People who saved for retirement now face a means-tested claw-back against what they are owed.  

Sen. Reid, a co-signer, said “assuming that the only way to strengthen Social Security is to take away benefits that seniors have earned, or raise taxes on the middle class.”  According to the Supreme Court, Flemming V Nestor, Social Security benefits are not earned.  In its ruling, "the Court established the principle that entitlement to Social Security benefits is not contractual right" - (source www.SSA.gov)  In other words, Social Security does not in fact owe anyone anything.

 “Social Security officials say that simple change would yield about $85 billion a year to keep the retirement program strong for at least another 50 years.”

The $85 billion a year could be used to reduce the annual deficits which run nearly a trillion dollars a year.  Pushing this $85 billion to Social Security means that our children will face $85 billion dollars a year in more debt plus interest.  This isn’t a tax on billionaires.  It is a tax on our children. 

 “The most successful government program in our nation's history has not contributed to the federal deficit.”

Sen. Sanders does not let facts get in the way of a good sound bite.  The payroll tax holiday cost the general taxpayer nearly $250 billion dollars of dollar for dollar deficit spending.  The EITC which was designed to offset the high cost of payroll taxes on lower-wage workers is projected according to Forbes to cost $326 billion over the next five years. 

 “It has a $2.7 trillion surplus, and it can pay out every benefit owed to every eligible American for at least the next 20 years, according to the Social Security Administration.”

This is another statement that is factually inaccurate.   The Trustees of the system have said in the 2012 report that the system’s financial resources may last as long as 20 years provided that we have a good economy.  On page 58 of the Trustees Report, the Trustees warn that the system resources maybe depleted in as little as 14 years.  These are what the Trustees call the ‘high cost’ assumptions.  While the report calls them high-cost, fertility, interest rates, and wage growth assumptions actually seem fairly optimistic.

What any reader should see in the news release is a sense of panic in supporters.  They no longer use facts to explain solutions because these ideas aren’t really about fixing Social Security as much as postponing the collapse until the senator leaves office.

The problem with the internet is that the message with the fewest words wins whether it is accurate or not.  What one writer loosely summarizes, the next will quote with authority.  That process continues until you have a cliché with the fewest words possible. 

The cliché de jour in the Social Security debate is “Raise The Cap – Problem Solved”.    The only problem with this idea is that no research actually supports the claim.  Most people repeat the claim without actually having a source.  Most writers that have a source cite opinion pieces which do not have any underlying research.   In the rare case where the idea is associated to actual research, the loose summary does not connect to the actual research.

There are problems with the loose summary.  First, the research that the author cites does not say what the writer claims that it said.  Second, the research is woefully out of date.   Third, the research introduces a bias that supports the conclusion of the cliché.  Finally, “fix” and “solvent for the next 75 years” are not close to the same thing.   None of these points are important to the next thousand writers who have pounded the statement with complete authority until it is little more than urban myth.

The most basic problem with the loose summary is that the referenced research contradicts the claim.  According to the article from the Congressional Research Service on page 13, Option 1 “Raising the cap” solves less than half of the solvency problem.   Option 2, “Eliminating the cap” does not solve the entire problem.   Option 3 “Eliminating the cap and capping the benefits” would make the system solvent for the next 75 years.  And so, fact is conquered by brevity.

It is easy to confuse ‘fixing’ social security with “making Social Security solvent for 75 years”.   They sound somewhat the same despite having nothing to do with each other.  The reader needs to know that the projection for solvency includes all of the revenue that falls into the 75 year window, but only a fraction of the cost.  For someone born in 8 years, the solvency number counts 49 years of revenue, and no projected cost for retirement benefits because those benefits fall outside the 75 year window.  The financial stability of Social Security can continue to erode even if the 75 year solvency test is passed.

Even if you use the loose definition of ‘fixed’ and accept that ‘raise the cap’ implies cutting the benefits associated with higher contributions, this report was based on data from 2005 when the solvency of the Social Security Trust Fund was 2041 or 36 years.  Since that time, the economy has lowered economic expectations for the system to 2033 or 21 years.  So the research into raising the cap is based on data that is showed trillion dollars of solvency that isn’t there anymore.  In 2011 alone, the Social Security system lost more than a projected trillion dollars of interest income. 

What the reader also needs to know is that the research comes with a significant disclaimer. 

~page 15

While the reaction to higher tax rates is unknown, it is predictable.  Higher taxes lower wages.  You will see people retire earlier or work less.  You will see individuals restructure their pay packages away from wages to compensation which is not subject to the tax.  Employers will have higher labor costs, which will lead to higher prices and lost jobs.  The study systemically ignores a negative bias to its conclusions.[2]  Basically this research will overstate its results.

The overstatement is apt to be serious because the higher taxes in these proposals target a group of people that area net-contributors to the system.  Not all people contribute equally to the Social Security system.  High-wage earners statistically get back less money per dollar contributed than low-wage earners.  So any policy that incents high-wage earners to leave or avoid the system will be much more painful than one that reduces participation rates of the whole.

The fact is that I don’t know how raising the cap would affect Social Security, but neither do the people who claim that it would solve the financial imbalances of Social Security.  What I can tell you is that there is no research to support the statement raising the cap will make the system solvent for 75 years, much less sustainable.  What research that does exist contradicts the statement.  And that what research that exists is as favorable to the statement as is possible.  In short, it is an internet myth.