So you want to expand Social Security benefits by taxing the “rich.”
Naive, misleading, uninformed; how else to describe new proposals to improve Social Security benefits for some by raising taxes on individual earnings in excess of $250,000? Such incomes represent less than 2% of all earners. This group already pays nearly half of all income taxes. Individuals with AGIs of more than $250,000 pay additional taxes for Medicare, to subsidize Obamacare and more, but hey, you may still think taxing the “rich” is a good idea. In fact, it is not.
Other proposals simply want to remove the cap on wages subject to Social Security taxes (but not the wages used to calculate the benefit); those who make such proposals claim to be able to improve benefits while saving the program.
But higher taxes on some Americans isn’t even the issue.
If we increase taxes on 2% of Americans to increase Social Security benefits and liabilities, who will pay for sustaining the program as it is? Where will the money come from in a few years to pay the Trust when it begins to redeem its Treasury bonds so it can continue to pay benefits? What about when those bonds are exhausted from paying benefits, how will full earned benefits continue to be paid? The truth is everyone will pay one way or the other.
You are being conned by populist rhetoric and if you don’t ask the tough questions, well, you lose.
Instead of buying into populist rhetoric, voters should demand facts and solid proposals to fix Social Security first, to address the trillions in liabilities then talk about restructuring for future generations.
This is a multi-generational problem that cannot and should not be solved from the pockets of a small segment of society. Just like the tax code and Medicare, Social Security needs a complete review and overhaul for the 21st Century and beyond.
O’Malley and Sanders both want to raise payroll taxes on the rich to fund expanded benefits
O’Malley and Sanders both fund their proposals by making income above $250,000 subject to the payroll tax. Currently, wages up to $118,500 are subject to Social Security payroll taxes, but wages above that point are not. That helps limit benefits, which are determined by applying a formula to one’s average monthly earning over the course of their career. But it also means that rich people pay less as a share of their income into Social Security.
Sanders goes a bit further on this point, and would also subject unearned income above $250,000 to the tax. That means that capital gains and dividends (which typically provide a lot of income to the rich but not much to the poor) would be taxed to fund Social Security, for the first time ever.
Both O’Malley and Sanders want to establish a higher minimum benefit for poor retirees. Both want to place it at 125 percent of the poverty line for Americans who’ve worked for at least 30 years; currently the minimum is $9,957.60 a year for people with 30 years of work experience, which is below the poverty line.
They would both adjust benefits for inflation using CPI-E, an experimental inflation measure the Bureau of Labor Statistics devised which measures price increases for items bought by seniors, as opposed to goods bought by the public as a whole.
From Pew Research Center:
In 2013, according to our analysis of preliminary IRS data, people with adjusted gross incomes above $250,000 paid nearly half (48.9%) of all individual income taxes, though they accounted for only 2.4% of all returns filed. Their average tax rate (total taxes paid divided by cumulative AGI) was 25.6%. By contrast, people whose incomes were less than $50,000 accounted for 63.4% of all individual income tax returns filed in 2013, but they paid just 6.2% of total taxes; their average tax rate was 4.2%.
The relative tax burdens borne by different income groups changes over time, due both to economic conditions and the constantly shifting provisions of tax law. For example, using more comprehensive IRS data covering tax years 2000 through 2011, we found that people who made between $100,000 and $200,000 paid 23.8% of the total tax liability in 2011, up from 18.8% in 2000. Filers in the $50,000-to-$75,000 group, on the other hand, paid 12% of the total liability in 2000 but only 9.1% in 2011. (The tax liability figures include a few taxes, such as self-employment tax and the “nanny tax,” that people typically pay along with their income taxes.)
NOTE: the percentage of tax returns reflects filing by households, not individuals so any additional payroll tax on those earning more than $250,000 is considerably less than the 2.4% shown above.