How Democrats Would Tax High-Income Professionals (Not Just the Mega-Rich)

New York Times ^ | November 19, 2019, | Neil Irwin

[karpov]

...

This year, American workers and their employers owe a combined 12.4 percent on Social Security payroll taxes for income up to $132,900 (rising to $137,700 in 2020). They owe nothing on earnings above that level.

Some Democrats in the thick of the presidential race and on Capitol Hill now seek to change or eliminate that cap — potentially placing a new double-digit tax on high earners, with several plans focusing on earnings above $250,000.

...

The result would be a large tax increase on high earners, even before other changes a Democratic administration might contemplate, such as increasing income tax rates or taxes on investment income.

In the Obama administration, for example, the top income tax rate was increased by 4.6 percentage points, and a Medicare tax of 0.9 percentage points was placed on high earners to help pay for expanded health coverage. Depending on the details, applying Social Security taxes to high incomes would increase the combined tax owed on each additional dollar of income for top earners by two to three times as much.

And it would eliminate a feature of the Social Security system that has made it politically untouchable through the decades — that the taxes Americans pay in are closely related to the benefits they eventually receive, assuming they live long enough. The top earners facing new Social Security taxes would not see their future benefits rise commensurately; rather it would amount to a transfer from high earners to low- and middle-income Social Security recipients.

“The traditional argument has always been that Social Security is very popular because it’s not seen like a traditional welfare program,” said Kyle Pomerleau, a resident fellow at the conservative-leaning American Enterprise Institute. “What you pay in roughly corresponds to what you get.”

[neverevergiveup]

“Democrats will win this one by the numbers. That’s all I’m saying.”

They will if people don’t understand it. The point is supposed to be that what you pay into social security should reflect what you eventually take out in some measure. It’s probably somewhere in the charter. Obviously, beyond a certain amount paid in, you are not going to get anything more back - thus is ceases to comply with the basic premise of social security.

That won’t stop them, but it is an argument that has to be spelled out.

[The Pack Knight]

“Given the long term problems of Social Security, and the trillions of dollars of assets held by many middle income people in 401K type assets, I can envision future Democrats wanting to “borrow” our retirement assets, to allegedly prop up Social Security. In reality, if that ever happens, money will be drained away to be spent on other socialist schemes.”

They already proposed something like this back in ‘08 after the crash: move 401ks into “Guaranteed Return Accounts.” Of course, the Argentinians were more honest and just confiscated private retirement accounts outright.

They will probably use the next stock market crash as an excuse to “protect” our 401ks by transferring them to the government for “safekeeping.”

[The Pack Knight]

Yes, which is why it probably won’t happen, at least not in the near future. Welfare is still unpopular, and a lot of Dems know it.

[Dilbert San Diego]

Yep, that’s it.

Any such moves will be made to “safeguard” and “protect” our investments. If done after a market correction or downturn, it will be said to be to “protect” us from market forces, so that we get a guaranteed rate of return.

[bkopto]

This is not a tax, it is plain and simple income redistribution.

I've come to understand that taxes are also a way by which politicians enrich themselves, by allocating tax money to corrupt organizations (such as Planned Parenthood or Ukraine) who then launder the tax money and kick it back to the politicians in various ways.

[Buckeye McFrog]

The point is supposed to be that what you pay into social security should reflect what you eventually take out in some measure. It’s probably somewhere in the charter. Obviously, beyond a certain amount paid in, you are not going to get anything more back - thus is ceases to comply with the basic premise of social security.

That ship sailed DECADES ago, my FRiend. If they withhold FICA out of your pay for 40 quarters you're entitled to draw benefits until the day you die. Nearly everybody here on FR would go to the wall to defend that, never mind the public at large. The idea that they were setting up a trust fund invested in your name was simply a fallacy used to sell this to Congress in the 30's. It has been for most of its history a redistribution program, and politicians will do WHATEVER it takes to keep it running smoothly in the name of self-preservation.

[fuzzylogic]

...and I’ll get a lot more out of the system than I would have otherwise when I retire right?

Yeah, I think not. Endlessly taking SS tax $$$$$$$ just becomes pure theft if you’re just giving to others and, when it’s my turn, I get a disproportionately less amount than to what I put in.

It’s why I thought there was a cap.

[neverevergiveup]

I understand that plenty of people pay very little in and get back way more than they contribute. The point though is that the opposite is not supposed to happen. You’re not supposed to be way more in that you can possibly ever get back.

[SMARTY]

Ha-Before it’s over they will be calling me ‘rich’. I’ll have to show them the condition of my yard and my 12 year old Mazda

[sphinx]

I grant your point. I was using the word “bankruptcy” a bit loosely. Social Security as currently constituted can only pay about 70 percent of promised benefits. For anyone other than government, defaulting on a quarter or a third of one’s obligation would be considered bankruptcy. For Social Security, sovereign immunity means government can default at will. The Supreme Court has been perfectly consistent on this. Social Security benefits can be cancelled any time the government finds it inconvenient to pay. It’s a welfare program, and it’s a crummy investment considering that we force people to participate, ostensibly for their own good.

[DownInFlames]

It is. I’ve been a paying into this Ponzi scheme for 45 years and now will start taking my promised monthly payout as promised by the federal government.

[GnuThere]

Yes, because they’re “public servants,” ya know.
Few things gall me more than that erroneous term.

[Vigilanteman]

Good luck combating a social security tax on incomes above $137,000. While I understand the moral arguments against such a move, the simple math is that those making over $137,000 per year are significantly fewer votes than those making less than $137,000 annually.

[Tzimisce]

Americans used to riot over small hikes in taxes on tea.

[SunkenCiv]

Liberals are wannabee dictators, and ultimately, we need to either outlast ‘em and enjoy their funerals, or, well, they’re not going to succeed, period.

[FreedomNotSafety]

Well at least you call it for what it is. It’s a promise to pay promises.

Many Freepers are dependent on it and nobody like being called welfare dependent. But if all promises made by politicians are sacred then every 6 figure teacher and government pension cannot be touched.

[The Pack Knight]

Pretty easy to follow the plan. Cradle-to-grave dependence for everyone for everything, and the Democrat-controlled federal government will be the font from which all benefit flows. We will all be Julia.

[The Pack Knight]

“Many Freepers are dependent on it and nobody like being called welfare dependent. But if all promises made by politicians are sacred then every 6 figure teacher and government pension cannot be touched.”

This is by design, of course. Because they are dependent on it, even self-professed conservatives will fight to protect the very welfare state they claim to despise. All the guns in the world seem kind of impotent in the face of that kind of power.

[Buckeye McFrog]

We will all be Julia.

The way things are going, perhaps literally.

[Buckeye McFrog]

Good luck combating a social security tax on incomes above $137,000. While I understand the moral arguments against such a move, the simple math is that those making over $137,000 per year are significantly fewer votes than those making less than $137,000 annually.

Bingo. And the guy paying FICA on every penny of his $42K income will never concede that a guy making $280K shouldn't be paying it on every penny of his.

Nor will people who have to pay 5%-9% sales tax on everything at Walmart have any issue with buyers of stocks on Wall Street paying a 1%-2% transaction tax.

Lousy economics. And politically unstoppable.