Using tax data to measure the potential impact of expanding the social security income base – Retirement Research Center

Abstract

This article measures the generality, value and allocation of certain accompanying benefits that are currently excluded from the socially secured elderly, survivors and disability insurance (OASDI) contribution base, including employer-sponsored health insurance (ESI) and employer contributions to health savings accounts, medical savings accounts and care benefits. We then simulated the expansion of the contribution base to include the potential impact of the value of these benefits, showing the impact on planned revenues and the scale and allocation of OASDI contributions. Our data comes from the IRS’s federal income tax records, which links personal tax returns, business returns and information returns, including Form W-2.

The paper found:

• In 2021, 40% of wage and wage workers receive ESI benefits with an average annual profit value of $10,710, which is equal to 12% of annual salary. The prevalence and value of ESI benefits increase with income, but the share of cash wages that equals low-wage income is greater than that of high-wage individuals.
• Expanding the OASDI contribution base to ESI benefits including wages and wage workers will increase the average annual average OASDI contributions by $420, a 7% increase in 2021. Among wage and wage workers with ESI, contributions will increase by 12% per year in 2021, while those earning between $25,000 and $49,999 will increase by 22%.
• Increasing employers’ contribution to health savings accounts, medical savings accounts, and dependency on care benefits on the contribution base will have negligible effects, as relatively few workers receive these benefits.

The policy implications of the finding are:

• Expanding the OASDI contribution base to include the value of ESI benefits can improve the value of the program’s finances by generating additional revenue.
• However, increasing the ESI benefits on the donation base will increase the payroll tax burden for many low-wage workers while not earning more than the taxable highest income for the plan.