The Most Regressive Federal Tax

It may have escaped your notice but not Kelly Brozyna’s, writing at RealClearPolicy:

Congressional Democrats are quietly trying to pass the biggest tax increase you’ve never heard of. Rep. John Larson (D-CT), who chairs the House Ways and Means Social Security Subcommittee, has introduced legislation called the Social Security 2100 Act which would significantly raise the payroll tax for entrepreneurs and employees alike.

This proposal would raise the payroll tax over several years by 2.4 percentage points (about 20 percent) to 14.8 percent of earned income. On the surface, this seems like a small tax increase, but it would take a painful bite out of the incomes of entrepreneurs, workers, and small business owners.

The tax increase is split between employers and employees, meaning they’d both see their taxes increase by 1.2 percentage points to 7.4 percent. What’s more, the proposal eliminates the cap on Social Security taxable income, which would suck a dramatic amount of capital away from job creators and out of our communities.

The payroll tax is the most regressive federal tax. My first choice in reforming it would be to abolish it altogether along with the system of fund accounting it supports in favor of paying Social Security retirement payments from general revenues, supported by increases in the personal income tax as necessary. My second choice would be to increase the cap on taxable income to whatever the threshold of the top 1% of income earners is and index it to keep it there while reducing the worker and employer rates to remain revenue neutral but keep the system solvent.

The reform described seems intent on punishing people—workers, employers, people with very large salaries. If this reform goes through, I predict you’ll see fewer of all three.

4 comments… add one
  • Andy Link

    I think your first choice makes practical sense, but not political sense. Pretty much everyone I know believes in the myth that they are “paying into” Social Security which is “saved” until their retirement when they get it back. I think that myth is a strong source of its popularity as people seem to believe it’s functionally equivalent to a giant savings plan. Hence the reason why the regressive nature of the tax doesn’t bother most.

    I’m not sure what the best solution is. I’ve grown up my whole life knowing that the SS promises made could not be kept without major changes and I’m still planning on not receiving what was promised. Coincidentally, the so-called trust fund is expected to be depleted when I turn 65.

  • steve Link

    Neither of your preferences is politically viable right now, especially the first. The proposed plan would be able to get GOP support so I guess the tis why it was proposed.

    Steve

  • Grey Shambler Link

    Like I told all of my younger co-workers, when I still worked, you’ll get that social security come hell or high water. But the security part may be smaller than you hope.

  • James P Kirby Link

    Probably meant was, “I predict you’ll see less of all three.”

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