Monday, August 12, 2019

House May Pass Social Security Tax Hike

By Robert Wenzel

With Democrats in control of the House of Representatives, Congressman John Larson's, (D-CT)  Social Security 2100 Act may pass the House.

There are a lot of whizbang increases in benefits for social security beneficiaries in the bill but don't believe for a minute that is the center of the bill.

The bill has been created to "fix" the growing deficit caused by outflows from the social security trust fund versus inflows. The bill fixes the deficit problem in only one way in this bill and that is by raising social security taxes. Even the Social Security Trustees estimate that the way things are currently structured the program will run a $13.2 trillion deficit between 2034 and 2092 (and this is a softball method of calculation).

The Larson bill is designed to eliminate that deficit. Thus, although Democrats will promote the "increased benefits" of the bill, increased taxes will have to amount to $13.2 trillion over the amount of the new benefits to eliminate the deficit. According to Chief Actuary Stephen Goss, the estimated $13.2 trillion budget deficit between 2034 and 2092 would be replaced by a $2.1 trillion net surplus if the bill were enacted. That will require a lot of extra taxation.

How will this be done?

The taxation of Social Security benefits was introduced in 1983. That was the "gift" that the Greenspan Committee provided to us. What a creep. It was in actuality a reduction in the "benefit" received by some who had contributed to social security.

Naturally, those that were taxed under this Greenspan program was expanded in 1993.

The Social Security 2100 Act would expand this threshold again and create a single taxation point of up to 85% for single filers and joint filers above $50,000 and $100,000, respectively.

That is, for example. a single-filer showing income of $50,000 or more would have to pay taxes on all but 15% paid out to him of the "benefits" originally due him. And here is the kicker, the threshold is not adjusted for price inflation, so over time more and more social security recipients will cross the threshold and be taxed.

Then things get worse.

Currently, all earned income between $0.01 and $132,900 is subject to Social Security's 12.4% payroll tax, with any earned income above $132,900 exempt from the payroll tax.

Larson's proposal would at first also put a 12.4% payroll tax on earned income above $400,000 (in addition to income under $132,900). But over time, the gap between $132,900 and $400,000 would shrink and eventually disappear and all income would face the payroll tax.

On top of this, over 24 years, the bill would increase the payroll tax itself, eventually pushing it in steps from 12.4% to 14.8%.

And that's how the scam works to raise social security payments while claiming an increase in benefits.

The Larson bill now has 200 co-sponsors in the House so it is likely to pass when it comes up for vote. The Republican-controlled Senate will very likely knock it down, but this is a very important example of why it is important that Republicans continue to control the Senate after the 2020 election if the Democrats hold the House. This type of expansion of taxation legislation needs to be stopped.

By cutting spending elsewhere, there would be plenty of money to fund the Social Security deficit.

Robert Wenzel is Editor & Publisher of EconomicPolicyJournal.comand Target Liberty. He also writes EPJ Daily Alert and is author of The Fed Flunks: My Speech at the New York Federal Reserve Bankand most recently Foundations of Private Property Society Theory: Anarchism for the Civilized Person Follow him on twitter:@wenzeleconomics and on LinkedIn. His youtube series is here: Robert Wenzel Talks Economics. More about Wenzel here.


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