No to scrapping (or raising) the Social Security tax – Lowell Sun
I oppose the proposed removal in 2023 of the $160,200 cap on income subject to the 12.4% payroll tax rate paid to Social Security.
Tracing its beginnings under the Franklin Delano Roosevelt administration, Social Security was designed with two goals in mind: (1) to enable low-wage workers, without access to insurance, pensions, and retirement accounts, to prepare for retirement and insure against premature death and disability with dignity, and (2) encourage work effort, especially at prime working ages. It does this by linking retirement, disability and survivor benefits to an individual’s lifetime earnings.
Although there is some redistribution from higher-paid workers to lower-paid workers, so that proportionally lower-paid workers get more out of their taxes paid, Social Security is decidedly not a tax program. assistance in its conception and in its official description. Eliminating the earnings ceiling would further reduce the link between earnings and benefits. This would be politically detrimental to the program and discourage work.
In particular, imposing a massive tax increase – 12.4 percentage points – on the incomes of about 10 million highly productive, mostly middle-class workers earning more than $160,200 would have several notable consequences. This would reduce their support for the program, strongly discourage their participation in the workforce, and encourage the avoidance of payroll taxes by converting earnings into incentive stock options and other forms of employee stock ownership.
It would also provide them with unnecessary additional benefits. Most of these workers enjoy broad, often employer-subsidized access to pensions, retirement accounts and insurance. The ability to avoid tax would introduce an element of unfairness because higher paid workers, such as corporate executives and professionals, would find it quicker and easier than well paid government employees, organizations to non-profit and mid-level enterprises to replace employee equity participation. In many cases, these workers would have their wages taxed at the federal, state and local levels at rates in excess of 70%.
The reality is that most Americans earning over $160,200 aren’t really wealthy, especially if they live on the coasts, have large families, or have high education or health care expenses. Many would struggle to bear the heavy additional tax burden if the cap were removed.
Over time, the volatility of personal income also makes such a large tax increase unfair. Many workers receive high incomes temporarily or at the end of their career. According to the Social Security Administration, although about 6% of workers earn above the taxable maximum, nearly 20% of current and future covered workers are expected to earn above the taxable maximum in a year. Therefore, taxing above the current maximum does not mean capturing the earnings of only workers with very high lifetime earnings. Furthermore, many of these high-income workers have already been exploited in recent years, with large tax increases going to Medicare and paying for the Affordable Care Act.
Even with the most draconian version of this proposal, where the tax cap is removed but no additional benefit results, and the additional monies go to Social Security, revenues would be well below the amount needed to make the program solvent at the benefit currently expected. levels. According to the Congressional Budget Office, initially only about two-thirds of the annual deficit would be met, decreasing to half in subsequent years.
Advocates who think this change is an easy way to avoid further curriculum reform are wrong. Moreover, they ignore the dire state of federal finances, which are rapidly deteriorating even outside of the growing strain on Social Security resources, and will require either program cuts, more revenue, or some combination. If the goal is to raise incomes, where will they come from if we have already increased social security contribution rates by 12.4 percentage points for middle- and upper-class workers?
There are many reasonable and fairer ways to get a solvent Social Security program without increasing payroll taxes. These reforms reflect a modern economy, society and labor market, as well as new ways of saving for retirement, while preserving the original objective of the program.
Mark J. Warshawsky is a Searle Fellow at the American Enterprise Institute. He previously served as Assistant Secretary for Economic Policy at the Treasury Department and Deputy Commissioner for Retirement and Disability Policy at the Social Security Administration. This column was provided by InsideSources.