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Originally Posted by txdot-guy
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This is a fluff piece for Democratic Senator Sheldon Whitehouse's proposed social security bill. I hate that sanctimonious, lying son of a bitch more than you hate Trump.
Social security should function like a defined contribution pension plan IMHO. But that's never going to happen, because there's no appetite to transition away from the current system. So the alternative as you say is shoring up what we've got. The best way IMHO is to increase employer and employee contributions for everyone.
Whitehouse caters here to the Democratic Party's fantasy that we can build a social welfare state if the rich just pay their fair share. And Biden has promised not to increase taxes on anyone making over $400,000 a year. So he's proposing to increase taxes on any taxpayer making over $400,000 a year by 13.6 percentage points and allocate that to social security.
Now, in politician-speak, that probably really means taxes go up for any individual making over $200,000, and married couples making over $400,000.
I'm reading this will raise about $250 billion a year. That would indeed put a sizeable dent in the gap between social security's promised benefits and income -- Kathleen Romig in her CBPP fluff piece says the gap is 1.3% of GDP, or about $370 billion a year.
After the TCJA tax cuts sunset, the maximum marginal federal rate will be 43.4%. Add 13.6% onto that, and you're at a 57% federal rate. Add to the 13.3% marginal state income tax rate in California, and some taxpayers will be paying at 70% rates under the Whitehouse Plan.
Furthermore, Whitehouse's bill will apply to capital gains. Maximum rates on long term capital gains will go from the current range of 23.8% to 37.1%, depending on the particular state, to 37.4%, in states like Texas with no state income tax, and up to 50.7% in California.
The Congressional Budget Office in evaluating legislation has historically assumed the revenue maximizing capital gains rate is about 28%. So government revenues from capital gains taxes levied on taxpayers making more than $400,000 will actually go down with Whitehouse's bill. When capital gains taxes are too high, people aren't as inclined to sell appreciated property, so government revenues from the tax are less.
And that's going to happen to a lesser extent with other types of income as well. Taxpayers making over $400,000 a year will realize less income than they would otherwise, and thus probably make Whitehouse's estimates of revenue look optimistic.
So, in summary, using assumptions that may be optimistic, $250 billion would be raised from this tax, which would go a decent way towards closing a $370 billion income gap for social security.
But what about all the other spending? Our annual deficits are running $1.7 trillion a year. Based on headline numbers, the politicians came up with $5 trillion in new spending in 2021 and 2022 from legislation like the American Rescue Plan, Inflation Reduction Act, CHIPS bill, Infrastructure Bill, etc. And we're going to see more of that in the future.
The Democrats need to give up on their fantasy that upper income taxpayers can pay for everybody's retirement, medical care, education, etc., because they can't. They don't have enough money. If they're going to create a social welfare state in America, they have to raise taxes, and social security contributions, on everybody, or alternately take the country down the same path as some South American and African banana republics.
