Dylan Matthews writes today about a proposal from Sen. Mark Begich to fix Social Security’s finances:
The Begich bill would lift the current payroll tax cap, which exempts wages in excess of a certain amount ($110,100 this year) from the tax….According to the Congressional Research Service, a change like that would almost entirely wipe out the program’s long-run actuarial imbalance. Specifically, it would eliminate 95 percent of the shortfall.
….But Begich’s bill doesn’t just increase taxes for high earners….
Dylan breezes by this a little quickly for my taste. Lifting the payroll cap is an idea that comes up a lot, but it’s worth acknowledging what it really means. If you’re a high earner—let’s say $500,000 per year—you currently pay 12.4 percent of $110,100 in payroll taxes. That’s $13,652, or 2.7 percent of your income. Under Begich’s proposal, you’d pay the full 12.4 percent on all your income.
That’s a total tax increase and a marginal tax increase of 9.7 percentage points. That’s huge. It’s four times the increase we’d get from letting the high-end Bush tax cuts expire and double the marginal increase.
That would, obviously, be a massive political battle. But what’s worse from my perspective is that it imposes this huge tax increase for one tiny purpose: saving Social Security. That’s crazy. We shouldn’t waste a big tax increase like this just to save Social Security, especially when there are lots of better ways of doing this that would require far less pain. Raising the payroll tax cap a bit to get it back to its historic level (covering 90% of income, or maybe a bit more) is a perfectly good idea. Eliminating the payroll tax cap is an idea that I don’t think even liberals ought to be happy about.