·
Proposals could lower economic growth by 1.17%, study finds
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Democrats eyeing payroll tax increases to fund Social Security
Proposals by several Democratic presidential candidates to shore
up Social Security by raising payroll taxes could have a downside: lower
economic growth and reduced wages, according to a study by the right-leaning
Tax Foundation.
Democratic contenders including former Vice President Joe Biden
and Senator Bernie Sanders are proposing higher payroll taxes as some voters
grow concerned that the Social Security trust fund they’re paying into won’t be
there when it’s time for them to retire.
“An increase in the payroll
tax rate or the payroll tax base results in lower wages for workers, as payroll
taxes are fully borne by labor,” according to the Tax Foundation study
released Tuesday. “This results in lower economic growth and lower after-tax
incomes, ranging from a drop in economic output from -0.28% for Biden’s
proposal to -1.17% for Sanders’.”
The current Social Security payroll tax rate is 12.4%, split
between the employee and the employer. The tax is levied onto wages up to $137,700, which would
remain in place under the Democrats’ proposals. They would supplement that with
some form of additional tax:
·
Biden would levy the 12.4% payroll tax on wages above $400,000
·
Senator Elizabeth Warren would add a 14.8% tax on wages above
$250,000
·
Sanders, Senator Amy Klobuchar and former South Bend, Indiana,
Mayor Pete Buttigieg have all proposed applying the 12.4% payroll tax to wages
above $250,000
·
Sanders has also proposed a new 7.5% payroll tax on employers,
with an exemption for the first $2 million in wages paid
Michael Bloomberg, who is running for the Democratic nomination
for president, hasn’t addressed the Social Security payroll tax in his
proposals, and the Tax Foundation study doesn’t mention him. Bloomberg is the
founder and majority owner of Bloomberg LP, the parent company of Bloomberg
News.
The Social Security Administration anticipates the trust fund will be depleted by 2035 if
Congress doesn’t make any changes, though benefits would continue to be paid at
an 80% rate from incoming taxes. Congress will be under pressure to act before
then, though lawmakers generally are less motivated to reach a compromise until
deadlines are imminent.
Biden’s plan would raise the least revenue among the proposals --
about $657 billion over a decade -- after accounting for
economic effects, according to the Tax Foundation estimates. Sanders’ combined
plan would raise the most -- about $4.68 trillion over
10 years. Warren’s plan would raise about $1.57 trillion and
the plan backed by Buttigieg, Klobuchar and Sanders would raise $1.3 trillion.
“The proposals to increase the payroll tax rate can raise a decent
amount of revenue -- they don’t close the gap for Social Security, but it does
put it on a much more sustainable path,” said Garrett Watson, a senior policy
analyst at the Tax Foundation. “The trade-off is economic growth over the long
term.”
The Social Security tax rate has been 12.4% since 1990. President
Donald Trump has floated the idea of cutting payroll taxes to reduce levies on
the middle class. His advisers have said they are working on a tax cut plan to
be released over the summer. Critics of a payroll tax cut said it could further
jeopardize the solvency of Social Security.
Trump’s annual budget released Monday wouldn’t change the Social
Security payroll tax.
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