NCPA - National Center for Policy Analysis

RAISING WAGE CAP IS A BAD IDEA

March 31, 2005

Raising the $90,000 wage cap on Social Security taxes would hurt millions of small businesses, slow economic activity and cost jobs, say Norbert Michel and Scott Moody in a recent Heritage Foundation study.

According to Michel and Moody, while most workers would not face a tax increase if the cap were lifted, the impact on small businesses would ultimately fall on workers in the form of lower wages and fewer jobs:

  • About 3 million small business owners earn more than $90,000 per year in wages and salaries and would face higher taxes if the tax cap were raised or lifted.
  • These small firms account for almost one-third of the wages paid out by small businesses, or $129 billion.
  • The 3 million affected small businesses are a major part of the U.S. economy: they spend about $20 billion a year on capital equipment and hold approximately $300 billion in capital assets.

Workers currently pay Social Security taxes on the first $90,000 of their annual income. Any earned income in excess of this amount is not subject to the 12.4 percent payroll tax that funds the program.

Source: Norbert J. Michel and J. Scott Moody, "Raising the Social Security Wage Cap Would Hurt Small Business," Heritage Foundation, Web Memo No. 694, March 17, 2005.

 

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