Congress may have ducked any discussion of entitlement reform in the June budget agreement, but there are a few bills under discussion that intend to shore up funding for existing Social Security payments.
They involve raising taxes – specifically, increasing the amount of wages subject to Social Security taxes:
Senate Budget Committee Chairman Sen. Sheldon Whitehouse, D-R.I., touted his bill, the Medicare and Social Security Fair Share Act, that would require wages above $400,000 to be taxed for Social Security.
“Right now, the cap on Social Security contributions means a tech exec making $1 million effectively stops paying into the program at the end of February, while a schoolteacher making far less contributes their share through every single paycheck all year,” Whitehouse said.
The bill also aims to correct other unfair features of the system, Whitehouse said, particularly the ability to live off wealth income while making no Social Security contributions. Under the bill, those with more than $400,000 in investment income would contribute to Social Security in the same way as those who earn wages.
Whitehouse touts this as a way to make sure the assorted class welfare bogeymen – the “mega-rich,” and of course, “billionaires” pay their “fair share” of Social Security taxes.
The amount of wages subject to Social Security taxes is $160,200. The Pete G. Petersen Foundation shows how much hypothetical wage earners would pay under a higher tax regime – no change for someone earning $50,000 per year, and (eventually) a more than 3-fold increase for someone making $500,000 per year.
Soaking the rich, then, looks like a winner for Social Security. They will pay more taxes, the little guy will face no benefit cuts, and all will be well in entitlement land for a while longer.
But as with any proposed tax increase, an important question is whether it will actually generate the amount of money supporters assume it will. The Petersen Foundation suggests one way a Social Security tax hike could fail miserably in that regard:
…some economists anticipate that if the [taxable income] limit were lifted, employers and employees might respond by shifting taxable compensation to a form of compensation that is taxed at a lower rate. For example, employers could decrease wages but increase retirement benefits, which are deductible under the corporate income tax, in an effort to offset the additional payroll taxes they would owe.
A possibility, not a certainty. But markedly higher tax rates do create incentives that undermine revenue projects while also encouraging a lot of unproductive economic activity. Welcome to the world of the “deadweight loss.” As Hoover Institution economist David Henderson wrote:
The deadweight loss from taxes is the loss imposed on some that is not a gain to anyone. So, for example, a typical estimate of deadweight loss from taxes is 30 percent of revenue raised. That means that if the government takes $1 million in additional taxes, there is an additional $300,000 cost imposed on players in the economy.
Where does this deadweight loss come from? It exists because people try to avoid taxes. So, for example, an increase in the marginal tax rate might cause people to work less. Or it might cause them to buy a more expensive house so that they can deduct the additional interest on the mortgage. Those are just two of the ways people can adjust. They might also evade taxes by understating income or overstating expenses and deductions. Why do we call the result deadweight loss? Because in each case, the tax system gives people an incentive to do something that they would not have chosen to do at a lower tax rate. The increased tax rate causes them to engage in behavior that otherwise would be inefficient for them.
The point is not to believe a politicians who, as Whitehouse did, says tax hikes, alone, are a “win-win” for everyone. That sounds good in a press release to the faithful. But in the real world, tax hikes by themselves are unlikely to do what’s necessary to shore up Social Security for the long haul. What is a responsible pol to do about entitlement funding then? Things that are unpopular for all interested parties – including a possible mix of tax hikes and benefit cuts, later retirement ages, changing cost of living indexes, and so on.
Which means nothing like it will occur any time soon.
The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.
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Attack Waste & fund from Waste OK
Are the biden clan members gonna pay on all their bribe money?
Let’s be clear, Social Security is a bad deal. If it was run by anyone other than the federal government the way it is managed, or more correctly mismanaged, is criminal. It is against the law.
The AVERAGE taxpayer would receive payments approximately FOUR-TIMES as much if the funds had simply been placed into a conservative, diversified IRA, and the estate would have on average $700,000 left over at the death of that taxpayer, which could be distributed to a spouse, other relatives, or charity.
…and that is how it stacks up for the AVERAGE TAXPAYER. Higher earners do not see nearly the paltry return received by the average taxpayer, and the proposal by Whitehouse would make the situation much worse.
The Social Security bureaucracy is bloated, full of fraud, has obscene overheads, and takes from one person to give to another to keep the Ponzi scheme going. Tens of millions of people have paid into the system without ever getting anything out. Many millions of other people have gotten money out of a system they never contributed to, and someday hundreds of millions of Americans are going to get nothing out of the system, except the empty promises they were told. How is any of that fair, ethical, or just?
Why are SS being called Entitlements? When one is FORCED to pay into a Ponzi scheme being called an entitlements. You want to know what government hand outs that are in fact entitlements. Food stamps, unemployment, PPP, Obama phones, housing assistance and so on. These hand outs are payments given to people from doing nothing but existing or being kept poor because of government policies. Payments handing out of which they never paid into but I did in my taxes. Just like money sent to Ukraine. But SS is a Entitlement I paid into for 50 years. I for one could have done a far better job of managing the money paid into SS the the government has done.
SS if you paid into it for your life is not an entitlement
lets call it what it really is
a Ponzi scheme
As long as BOTH parties are allowed roll around in our tax dollars, and stuffing their own pockets in the process, then nothing meaningful will ever get done.