Social Security reform is long overdue, but massive tax hikes are not the answer
House Democrats are considering pushing a massive tax hike on American workers, regardless of their income level, as part of a bill to expand Social Security. There’s no question that Social Security faces significant funding issues, but there are better ways to reform the program than increasing payroll taxes on every employer and worker.
According to the Social Security and Medicare Trustees, Social Security is facing a $13.2 trillion cash shortfall between 2034 and 2092. Medicare is in even worse financial shape facing a $37.7 trillion funding shortfall over the next 75 years, but the issues with Medicare are a topic for another time. The Social Security Disability Insurance (DI) Trust Fund will be depleted in 2032, at which point the trust fund will be able to pay 96 percent of scheduled benefits. The Old Age and Survivors Insurance (OASI) Trust Fund will be depleted in 2034. The trust fund will be able to pay only 77 percent of OASI benefits.
Clearly, the severe financial issues that Social Security faces must be addressed sooner, rather than later. However, the way House Democrats are approaching the issue is wildly misguided.
The House Subcommittee on Social Security recently held hearings on the Social Security 2100 Act, H.R. 860. The bill was introduced in February by Rep. John Larson, D-Ct., who chairs the subcommittee, and has more than 200 cosponsors, all of whom are Democrats. The bill is highly likely to get a vote in the House at some point during this Congress.
Although the Social Security 2100 Act would slightly increase benefits, it would gradually raise the Federal Insurance Contributions Act (FICA) tax, what most of us know as the “payroll tax,” to 14.8 percent from 12.4 percent, split between employers and workers. Sole proprietors, of course, bear the full brunt of the payroll tax.
A small business owner from Florida who testified before the subcommittee, Joseph Semprevivo, noted that the additional taxes would increase the burden on his business and his employees.
“This proposed tax increase would hurt my employees as much as it would hurt me and other small business owners. For many employees, the payroll tax is the biggest tax burden they face,” Semprevivo said. “It will prevent other workers from having the funds to make their car or housing payments. It will prevent others from having the funds to take a vacation.”
Not only would it hurt employers and workers, but young people would also be negatively impacted by a payroll tax increase. This particular segment of the American population is already struggling to pay student loans, find affordable housing and save for retirement. Raising their taxes for a program from which they will likely never benefit is an extra blow to their livelihood.
Although Democrats spend much of their time on the floor of the House or Senate and in committee railing against higher-income earners, the Social Security 2100 Act would, ironically, increase their benefits. Democrats are also touting their proposal as a tax cut for low and middle-income seniors. In practice, this will again have the opposite effect. The increased benefits for high-income seniors would necessitate a tax increase that will impact the very same people the Democrats claim to champion.
The House Democrats’ bill isn’t the way to address Social Security’s financial problems. There is another way, and it wouldn’t involve a massive tax increase on employers and workers.
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Back in December 2016, then-Rep. Sam Johnson, R-Texas, introduced the Social Security Reform Act. The Social Security Reform Act would have made the program solvent, creating a $600 billion surplus while still expanding benefits, phasing out the tax on benefits, and providing an increased cost-of-living adjustment (COLA) for lower-income individuals. Higher-income earners would have seen a lower COLA. The Social Security Reform Act would have simply increased the retirement age to 69 from 67 and means-tested benefits for survivors, among other tweaks, to ensure the viability of the program.
Social Security has to be reformed if the program is to remain viable, but House Democrats’ plan falls far short of a serious proposal because the so-called “solution” is more of the same from the far-left: tax increases. That’s not a good way to have a necessary, long-overdue conversation about mandatory spending, which consumes a larger portion of federal expenditures with each passing year.
Jason Pye is the vice president of legislative affairs for FreedomWorks.