Billionaires aren’t the only ones who’d face a hefty tax increase if Sen. Elizabeth Warren or Sen. Bernie Sanders won the presidency next year.
Ms. Warren and Mr. Sanders love to talk about how much more millionaires and billionaires will pay under their tax proposals. Both candidates support a wealth tax. Ms. Warren even wants a second punitive levy on billionaires to help fund her “Medicare for All” scheme. Even with that tax, though, her plan is trillions of dollars short.
But the promised giveaways haven’t been limited to Medicare for All, universal child care and student loan forgiveness. Ms. Warren and Mr. Sanders also want to increase Social Security benefits. That’s going to be problematic because the Social Security Trust Fund is projected to be out of money by 2035. Absent systemic reform, retirees will receive only 77 percent of promised benefits after that date.
To finance bigger Social Security checks, Ms. Warren wants to impose a new 14.8 percent tax on wages above $250,000, split between employees and employers. The current Social Security tax is 12.4 percent, split between employees and employers. The tax currently applies only to wages up to $132,900. Mr. Sanders wants to apply the 12.4 percent tax on wages above $250,000. These taxes wouldn’t just apply to billionaires. They would raise taxes on millions of upper-middle-class earners.
If Ms. Warren is successful, high-income workers in New York City could face a marginal tax rate of 63 percent, according to The New York Times. Among well-off nations, Sweden currently assesses the highest marginal tax rate of 60 percent. Ironically, this tax would fall disproportionately on Democrat-leaning states. Data from Moody’s Analytics shows that the 12 states with the highest percentage of workers who would pay this tax all voted for Hillary Clinton. The top three states are the deep-blue enclaves of New Jersey, Connecticut and Massachusetts.
The biggest change, though, is that the senators’ plans would alter the nature of Social Security itself, which is supposed to function as a mandatory savings plan. The premise is that you get out what you put in. In fact, the program depends on transferring wealth from current workers to retirees. Yet payouts have indeed been tied to contribution rates. High-income workers receive more because they paid more. The plans of Sens. Warren and Sanders would upset that arrangement, essentially transforming Social Security into a welfare program.
Social Security has plenty of structural challenges that need to be addressed, particularly falling contribution rates as fewer and fewer workers support more and more retirees. Turning it into another public assistance program would only contribute to the problems by potentially undermining Social Security’s widespread public support among those of all income levels.