Wage Inequality Poses a Larger Economic Burden Than Prospective Social Security Tax Hikes
For Immediate Release: March 14, 2005
Contact: Debi Kar, 202-387-5080
Numerous politicians and commentators have claimed that the prospect of
higher Social Security taxes in the future will threaten the living standards of
our children and grandchildren. A new report by the Center for Economic and
Policy Research (CEPR) economist Dean Baker, entitled "The
Burden of Social Security Taxes and the Burden of Wage Inequality"
shows that wage inequality poses a much larger economic burden on most workers
than any tax hikes that may be needed to keep Social Security solvent. The tax
increases that the Social Security trustees and the Congressional Budget Office
project would be needed to maintain Social Security's solvency would have far
less impact on the living standard of a typical worker than the rise in wage
inequality the nation has experienced over the last quarter century.
A typical worker lost an amount equal to 9 percent of their wages due to the
increase of wage inequality over the last decade. By contrast, the Social
Security trustees and the Congressional Budget Office project the size of the
tax increase needed to keep Social Security fully solvent over its 75-year
planning period as 1.9 percent and 1.0 percent, respectively.
The amount of money that typical wage earners have lost in the last year alone,
due to the upward redistribution of income, is comparable in size to the tax
increases that would be needed to maintain Social Security’s solvency for the
next seventy five years. If recent trends in inequality persist into the future,
it will pose a much greater threat to the living standards of most young workers
than the prospect of paying higher Social Security taxes to keep the program
solvent. If wage gains are more or less evenly shared, then future generations
of workers would experience large increases in living standards regardless of
what happens to the Social Security tax rate.
Given the large amount of attention devoted to the prospect of a higher Social
Security tax, it is striking that recent trends in wage inequality – which
have a much larger impact on most workers’ welfare – have passed largely