At last night’s Democrat presidential debate, moderator Tim Russert asked the candidates what they would do about Social Security if elected. Russert pointed out that, in the near future, either benefits would have to be slashed in half or taxes doubled to sustain Social Security as it presently exists.
John Edwards posed this question in response:
“But I don’t understand why somebody who makes $50 million a year pays Social Security taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. on the first $97,000 and somebody – and not on the rest…”
Edwards went on to indicate that he would advocate taxing all income for Social Security, not income up to a certain level as it presently occurs. He would, of course, carve out a “protective zone” for the “middle class” that would make earnings from “$97,000 up to around $200,000” exempt.
There isn’t enough space on this blog to dive into the complicated math or history of Social Security, let alone the justification of such a program or its economic effects, but we can look at what Mr. Edwards’ tax increase would look like.
For better or for worse, Social Security is currently taxed at a rate of 6.2% on the first $97,500 earned per year – the so-called cap. That means the maximum yearly Social Security tax that could currently be owed by an individual is $6,045. The “cap” has been going up over time; the current $97,500 level is $30,000 higher than it was just a decade ago.
Under Mr. Edwards’ plan of removing the “cap,” his hypothetical individual would face a Social Security tax increase of $3,087,600. If one assumes that said individual may work for 15 more years, he or she will face a total Social Security tax hike of over $50 million over that time period.
And all of that assumes that the individual is not self-employed. If that were the case, his or her Social Security tax liability would be doubled (yes, that’s a tax increase of more than $6 million per year in the hypothetical).
It may go without saying, but it’s not just someone making $50 million who’s going to be paying big time. Someone making $500,000 per year, for example, would see his or her Social Security tax burden quadruple.
There aren’t clear answers on what the future of Social Security should look like (including whether or not it should have any future at all), but it is pretty clear that Mr. Edwards’ plan, including repealing the Bush tax cuts and doubling the tax on capital gains, would amount to one of the biggest taxes increases ever passed in the United States.
Share