Leveraging Tax Data to Measure the Potential Impact of Broadening Social Security’s Revenue Base

• In Event: Impact of Pension Reforms

Abstract

This paper measures the prevalence, value, and distribution of certain fringe benefits that are currently excluded from Social Security’s Old Age, Survivors, and Disability Insurance (OASDI) contribution base, including employer-sponsored health insurance (ESI) and employer contributions to health savings accounts, medical savings accounts, and dependent care benefits. We then simulate the potential impact of broadening the contribution base to include the value of those benefits, showing the effects on program revenue and the size and distribution of OASDI contributions. Our data come from federal income tax records from the Internal Revenue Service, which links individual tax returns, business returns, and information returns, including Form W-2s. We found that adding employer contributions to health savings accounts, medical savings accounts, and dependent care benefits to the contribution base would have negligible effects because relatively few workers receive those benefits. Broadening the OASDI contribution base to include the value of ESI benefits could improve program finances by generating additional revenue. However, adding ESI benefits to the contribution base would raise payroll tax burdens for many low-wage workers, while collecting no additional revenue from workers with earnings above the program’s taxable maximum.

Authors

• Karen Smith, Urban Institute

• Richard Johnson, Urban Institute