The Democrats are looking to make Social Security benefits a factor in next year’s presidential election. The Social Security 2100 Act has been floating around Capitol Hill since at least 2015 – with Connecticut Congressman John B. Larson as the main pusher of the legislation. He’s got over 200 bill sponsors this time – all of which are, unsurprisingly, Democrats.
Larson – and Democratic co-sponsors – are portraying his bill as a way to provide “economic security” for Baby Boomers along with the ever so nebulous term “future generations.” He’s also using President Donald Trump’s own position as a way to press the legislation forward. Trump said in 2015 and 2016 he wasn’t interested in reforming Social Security and believed his tax cuts – and a stronger economy – would save the program.
The truth of Trump’s statement on a great economy saving Social Security is debatable.
“There is no realistic chance that Social Security will ‘fix itself’ via higher economic growth or other changes to the underlying factors that affect the program’s finances,” American Enterprise Institute’s Andrew G. Biggs told Congress earlier this month while blaming the federal government for poor stewardship. “The question…is whether America needs Social Security benefit increases. While targeted benefit increases may be warranted, the evidence supporting across-the-board benefit increases is far weaker.” (emphasis mine)
The Democrats’ bill would be an across-the-board benefit increase for Social Security earners – on the backs of the rich and, more importantly, workers and small business owners.
The Social Security 2100 Act would increase payroll taxes on workers from the current 6.2% to 7.4% by 2043. Businesses would also see their payroll tax go up from 6.2% to 7.4%. This means the payroll tax would jump over two-percentage points to a total of 14.8% by 2043. The hike slightly cuts into gains taxpayers and businesses made through the 2017 tax cuts.
Economics 101 says businesses will do all they can to keep making a profit. This means layoffs, not even bothering hiring new workers, and keeping wages low. Social Security 2100 Act would actually destabilize the economy and probably put even more people on welfare.
Small business owners – which include independent contractors i.e. freelance workers – would be hurt even more. Larson wants to increase taxes from the already-too-high current 12.4% to 14.8%. They are already taxed at 34.94% under current federal law – thanks to a 17.4% deduction in the 2017 tax cuts. This payroll tax increase would actually encourage more freelancers to take up a full-time job with a larger business, so they won’t be hit by the extra taxes. Of course, if businesses aren’t hiring workers because of the extra payroll tax, then there won’t be any other jobs to be had.
Way to encourage entrepreneurship, government! Note sarcasm.
House Democrats are mostly trying to gloss over this tax increase by focusing on soaking the rich. The proposal – which should hit the full House at some point this year – would start taxing people who make over $400K each year.
The problem with Larson’s idea? Inflation.
“Since that $400,000 threshold is not indexed for inflation while the Social Security payroll tax ceiling (currently $132,900) rises each year along with nominal wage growth, eventually the payroll tax would apply to all earnings,” Biggs told Congress. “This means a nearly 15 percentage point effective marginal tax increase not merely on millionaires and billionaires, but on upper-middle-class households looking to pay off their mortgage, fund college for their kids or save for retirement.”
The Social Security Act adjusts taxes automatically each year based on the average wage index. It’s gone up each year since 1950 – meaning it will eventually hit $400K, although it probably won’t be in our lifetime. This means every American will have to pay the $400K threshold rate if it isn’t adjusted for inflation – and Americans would probably head for the tar and feathers in anger.
Larson’s bill – should it pass the House – is probably DOA in the Senate. Yet, conservatives and libertarians should still be concerned about the proposal because it sets up a battle for 2020. Vermont Senator Bernie Sanders is pushing Medicare-for-All and tends to run either first or second in current Democrat 2020 polls. Other Democrats – including Liz Warren, Kamala Harris, Cory Booker, and Kirsten Gillibrand – back Medicare-for-All, even if voters may be souring on the idea.
Republicans and Libertarians will have to come up with their own ideas outside of repeating Trump’s line of not wanting to make any changes. This is easier said than done. President George W. Bush attempted to privatize Social Security. Former Texas Congressman Sam Johnson suggested raising the retirement age to 69 in 2016 and former New Jersey Governor Chris Christie also ran on raising the retirement age. All faced resistance.
It should be pointed out Americans are becoming much better at saving money. Vanguard reported in 2017 around 75% of post-retirees were happy with their retirement. Only 1% was planning for relying only on government benefits while 30% were relying on non-government sources. Of the 47% which had a mix of government and non-government sources – the vast majority of the help came from non-government sources, while only 20% of the income was from the government.
Americans are planning for their future without the government. The Social Security 2100 Act would do the exact opposite of what its proponents claim. It should be resisted and discarded.