Among many policy wonks, there is a somewhat breezy belief that raising the income cap for Social Security payroll taxes is the obvious way to tackle the program’s long-term imbalance. But as Megan McArdle explains, there is a small problem here:

This is coming up over and over again–an “easy” fix for Social Security wherein “all” we have to do is get rid of the cap on Social Security payroll taxes, without increasing benefits.  Dylan Matthews has the charts that are currently making the rounds, which show that this simply solution not only eliminates the Social Security shortfall, but also generates a substantial surplus!

This is not actually surprising, since what this amounts to is hiking the marginal tax rates on high incomes by 15 percentage points–making the federal tax take on the highest incomes 55% in 2012, assuming that Obama and Congress follows through and allows the Bush tax cuts to expire in 2011.  This is obviously a gigantic hike, and moreover, when Medicare, state, and local taxes are added in, would push the tax burden on the highest incomes to over 2/3 in the hightest tax jurisdictions.

And at those levels, we start to see massive effort devoted tax avoidance.