Social Security Tax Increases Should Be Part of the Solution – Center for Retirement Research

But the increase should be small and gradual.

Enough with the politics. Time to get back to problem solving. It’s no surprise – when I look at the world – the issue I care about the most is fixing Public Safety. But in an effort to protect low-income families, President Biden has pledged to never raise taxes on households making less than $400,000. This denial has turned reasonable plans for a comprehensive solution into absurd proposals where the benefits extension will sunset after a few years.

My view is that a modest increase in the income tax rate should be part of any package to close the 75-year Social Security deficit. Indeed, the Social Security experts’ scores show that gradually increasing the tax rate paid by each worker and employer by one percentage point (from 6.2 percent today to 7.2 percent in 2049) would reduce the 75-year deficit from a 3.5 percent tax rate. income was 1.5 percent. Of course, other components will be needed, such as increasing the taxable income base, expanding coverage for state and local employees, and perhaps investing some of the trust fund’s money in stocks. And if 1 percent is too much of a payroll tax increase, cut it in half. But other rate hikes should at least be open to discussion.

But it was never discussed because of the promise of no new taxes on those earning less than $400,000. The question that puzzles me is where this disconnection came from. It reminds me of the 2012 election cycle when both President Obama and Governor Romney accepted $250,000 to define the middle class. President Obama has proposed keeping the Bush tax cuts for households with incomes below $250,000 and eliminating tax cuts for those above the threshold. Romney in an ABC interview gave a similar definition of the middle class: “…middle income is $200,000 to $250,000 and under.” Politicians seem to have a mental image that the middle class can be considered to have an income of hundreds of thousands of dollars.

According to Census data in Table 1, which presents the thresholds for being in different parts of the income distribution, a family in the middle of the income distribution in 2023 had an income of $80,610. A household with an income of $316,100 was 95th^th the percentile. Boundaries must be interpreted with caution because households include old and young, urban and rural, coastal and central, and young and old. That said, it is very difficult to understand how anyone can commit to protecting all but the top 5 percent from a tax increase.

I am convinced that the rich in this country are not paying their fair share. But the way to solve that problem is to tax the interest of those on private equity in full amounts, eliminate the step-up at death, perhaps introduce an inheritance tax, etc. Barring any increase in “floor” taxes 95 percent doesn’t seem reasonable to me. And such a commitment makes it more difficult to solve Social Security’s financial crisis.