1. Earlier this year, three JCT economists published a paper finding the revenue-maximizing rate is actually about 40%, not 60-70%.
2. Re: the employer share being passed on to the employee, it's explicit with respect to the self-employed, who must pay the entire 12.4% by law. And my guess is that above the wage cap, there are a disproportionate number of self-employed (law firm partners, insurance/real estate brokers, restaurant owners, etc.).
Thanks George. I actually missed the paper you mentioned (looks like it came out when I was out on my sabbatical), so appreciate you flagging. My understanding after looking it over now is that the conclusion only applies to our *current* tax code — that is, with all the deductions and carve-outs that make income taxes Swiss cheese.
That’s an important finding for policymakers who want to just jack up the top rate and be done with it. But our tax plan, which closes many of those loopholes, should be able to raise more revenue from a higher top rate. And I think if we are arguing about the universe of possible tax hikes on the rich, it’s worth steel-manning against what might be the highest possible rate rather than just the highest reasonable rate with all other parameters fixed.
Ben tackles the most important issue on taxes: For what purposes should they be raised? Yes, many rich people can pay a fairer share of the total burden. But the pretense that raising taxes on the rich pays for everything is one cause of our debt problems.
This analysis against eliminating the cap on earnings that are subject to Soc Sec contributions is not convincing. The airy argument is that some kind of substitution effect may occur, obviating other forms of revenue raising. Yet in concrete terms, a great deal of money is being left on the table, kept by households that can afford to pay it. Eliminating this earnings cap is among the easiest, most just, and most acceptable ways to raise tax revenues and help to reduce fiscal challenges.
If the point is to be pro-worker, while noting the wealthy already have more than enough, then the minimum wage (and the overtime threshold & penalty) should be looked at because here is where more wealth can be shoveled to workers, who do not have enough, allowing them to contribute more to SSA.
This begins to solve income inequality, which drives more income under the tax cap. It also has the added benefit of reducing pressure on social safety net programs (Medicaid, SNAP, TANF, etc.), while also reducing the corrupting effect of money in politics by shifting more money toward wages and away from profit. It also does all this by getting at the root of the problem - low wages, meager benefits, all manner of anti-worker/-union provisions - instead of trying to tax it away after earnings when the wealthy have already had a chance to deploy the wealth to corrupt government to their benefit.
A good place to start would be a $30 per hour minimum wage pegged to inflation and a 30-hour full-time workweek / overtime threshold (consider a peg to productivity growth) with the penalty increased to double time. The $30 would be somewhat higher than the inflation-adjusted peak minimum wage (1968) and pegging it to inflation prevents gridlock in Congress from letting it erode. Reducing the overtime threshold (with or without a peg to some measure of productivity growth) would create labor scarcity (pulling more people into the workforce, while also eliminating low-productivity jobs through automation) and support worker's bargaining power, even in the absence of strong union representation.
Reward work and empower workers fairly can be the fix for SSA that keeps on fixing.
I liked PPI's proposal for replacing payroll taxes with a VAT. If no politician has the guts for that, maybe they can propose eliminating payroll taxes and making up the revenue through the individual and corporate income taxes (raise rates, end deductions, etc).
Ultimately, though, if most Democrats are in favor of eliminating the payroll tax cap, I think it's better to do that than to do nothing. If we reach a point where insolvency is no longer an immediate issue, then there's a debate to be had about increasing benefits at the bottom while cutting them at the top. But right now, the party base is in a soak-the-rich mood, and at least some of their appetites need to be appeased.
As a high earner, cutting my SS benefits in the future is a lot like a tax increase. I’m fine with the idea that benefits should be actuarially sound between the generations, but I hate the welfare aspect of SS.
I think the real reform would be to direct SS payments directly from children to their parents. Then you know where your money is going and if people have fewer kids they get less benefit. You could have some low minimum benefit raised from everyone’s taxes for poverty reduction.
Strong piece, Ben. Two minor points:
1. Earlier this year, three JCT economists published a paper finding the revenue-maximizing rate is actually about 40%, not 60-70%.
2. Re: the employer share being passed on to the employee, it's explicit with respect to the self-employed, who must pay the entire 12.4% by law. And my guess is that above the wage cap, there are a disproportionate number of self-employed (law firm partners, insurance/real estate brokers, restaurant owners, etc.).
Thanks George. I actually missed the paper you mentioned (looks like it came out when I was out on my sabbatical), so appreciate you flagging. My understanding after looking it over now is that the conclusion only applies to our *current* tax code — that is, with all the deductions and carve-outs that make income taxes Swiss cheese.
That’s an important finding for policymakers who want to just jack up the top rate and be done with it. But our tax plan, which closes many of those loopholes, should be able to raise more revenue from a higher top rate. And I think if we are arguing about the universe of possible tax hikes on the rich, it’s worth steel-manning against what might be the highest possible rate rather than just the highest reasonable rate with all other parameters fixed.
Fully agree with your second point.
Ben tackles the most important issue on taxes: For what purposes should they be raised? Yes, many rich people can pay a fairer share of the total burden. But the pretense that raising taxes on the rich pays for everything is one cause of our debt problems.
This analysis against eliminating the cap on earnings that are subject to Soc Sec contributions is not convincing. The airy argument is that some kind of substitution effect may occur, obviating other forms of revenue raising. Yet in concrete terms, a great deal of money is being left on the table, kept by households that can afford to pay it. Eliminating this earnings cap is among the easiest, most just, and most acceptable ways to raise tax revenues and help to reduce fiscal challenges.
If the point is to be pro-worker, while noting the wealthy already have more than enough, then the minimum wage (and the overtime threshold & penalty) should be looked at because here is where more wealth can be shoveled to workers, who do not have enough, allowing them to contribute more to SSA.
This begins to solve income inequality, which drives more income under the tax cap. It also has the added benefit of reducing pressure on social safety net programs (Medicaid, SNAP, TANF, etc.), while also reducing the corrupting effect of money in politics by shifting more money toward wages and away from profit. It also does all this by getting at the root of the problem - low wages, meager benefits, all manner of anti-worker/-union provisions - instead of trying to tax it away after earnings when the wealthy have already had a chance to deploy the wealth to corrupt government to their benefit.
A good place to start would be a $30 per hour minimum wage pegged to inflation and a 30-hour full-time workweek / overtime threshold (consider a peg to productivity growth) with the penalty increased to double time. The $30 would be somewhat higher than the inflation-adjusted peak minimum wage (1968) and pegging it to inflation prevents gridlock in Congress from letting it erode. Reducing the overtime threshold (with or without a peg to some measure of productivity growth) would create labor scarcity (pulling more people into the workforce, while also eliminating low-productivity jobs through automation) and support worker's bargaining power, even in the absence of strong union representation.
Reward work and empower workers fairly can be the fix for SSA that keeps on fixing.
I liked PPI's proposal for replacing payroll taxes with a VAT. If no politician has the guts for that, maybe they can propose eliminating payroll taxes and making up the revenue through the individual and corporate income taxes (raise rates, end deductions, etc).
Ultimately, though, if most Democrats are in favor of eliminating the payroll tax cap, I think it's better to do that than to do nothing. If we reach a point where insolvency is no longer an immediate issue, then there's a debate to be had about increasing benefits at the bottom while cutting them at the top. But right now, the party base is in a soak-the-rich mood, and at least some of their appetites need to be appeased.
As a high earner, cutting my SS benefits in the future is a lot like a tax increase. I’m fine with the idea that benefits should be actuarially sound between the generations, but I hate the welfare aspect of SS.
I think the real reform would be to direct SS payments directly from children to their parents. Then you know where your money is going and if people have fewer kids they get less benefit. You could have some low minimum benefit raised from everyone’s taxes for poverty reduction.