Elizabeth Warren has a soak-the-rich plan for every problem in America. To make the math of any of these fiscal concoctions work, she’s going to have find a lot more rich people to tax. The latest scheme is to increase Social Security monthly benefits for current and future retirees by about $200 a month from the current average of about $1,400 a month and taxing the top 1 percent.
The Social Security trust fund is expected to be out of money in about 16 years, so this give-away would obviously accelerate the retirement program’s financial demise.
To make up for the shortfall, Ms. Warren would impose a new 14.8 percent payroll tax on Americans who earn more than $250,000 and extend the payroll tax to income on investments, such as dividend checks and capital gains from stocks and assets when they are sold. This taxing plan — on top of the annual wealth tax she supports and her intention to cancel the Trump income tax rate cuts for those earning more than $250,000 would raise the highest tax rate on earnings from the current 37 percent to at least 52 percent.
Income tax rates haven’t been this high in almost 40 years. When rates were above 50 percent in the 1970s, rich people engaged in so much tax avoidance that the share of taxes paid by the top 1 percent was actually much lower than the share of taxes the rich pay today.
This would erase almost all of the pro-growth gains of the Trump tax cuts. (See chart.)
The raising of the capital gains tax from 23.8 percent today to about 40 percent (including the wealth tax) would be the largest tax increase on investment and saving in American history. It would double the rate from where it stood as recently as 2000, when Bill Clinton was president and lowered the tax to 20 percent. Memo to progressive Democrats: The cut in the capital gains tax under Mr. Clinton led to the biggest increase in capital gains revenues in American history and helped balance the budget.
Suffice it to say that under this scheme, Social Security will go broke before a single Gen Xer or millennial ever sees a dime.
But even more preposterous is the idea that tax rates levied on small business owners — most people in the top 1 percent own, operate or invest in small, start-up firms — can be raised to way above the rates imposed by other rival nations without wrecking American competitiveness.
Under Mr. Trump, the U.S. economy is now growing faster than almost any other industrial nation, and money is pouring into the United States as reflected by the strong dollar. Our tax rates under Ms. Warren (and Bernie Sanders and most of the rest of crew of Democratic presidential wannabes) would soar overnight from near the lowest to near the highest in the world.
This makes as much sense as high-flying Texas with no income tax deciding to adopt the sky-high tax rates of Illinois, New York and New Jersey where people and jobs are leaving by the hundreds of thousands each year.
This plan would destroy so many millions of jobs in America that Social Security payments for many workers would likely fall, rather than rise, because they will be unemployed longer and will have worked fewer hours.
Perhaps the worst feature of the Warren plan is that it overtly turns Social Security into what is was never intended to be when FDR signed the program into law: an income redistribution welfare program.
Social Security from when it was established in the 1930s as a national social insurance system has always been based on the idea that workers pay into the system to cover their monthly Social Security checks later in life when they retire. The plan has a progressive benefit structure, meaning that a low-income worker gets more back per dollar paid in than a high-income worker (although the system is a bad deal for all workers compared to putting the money into a personal retirement account).
But even a New Dealer like FDR never meant it to be an explicit welfare program with the rich paying largely the freight for the costs of everyone else. Ms. Warren wants to even provide benefits to people who rarely if ever paid into the system at all.
There is a much better way to increase the Social Security benefits for young workers without raising taxes on anyone. That is to let all workers take 10 percent of their paychecks and rather than the money going into the hollow Social Security trust fund, invest those dollars into a personally owned index fund of stocks.
This would allow almost all young workers to gain real wealth through their working years and retire with more than $1 million to $2 million of real savings that could pay them benefits of not $200 more a month, but monthly payments that would easily double their promised Social Security benefit.
One of these proposals vastly increases worker freedom and personal wealth for all Americans of all income groups, and the other grows government and raises crippling taxes in ways that would steer the economy over the recession cliff. Sad, but no surprise that Ms. Warren, who pretends to be a warrior for the little guy, has wrongly chosen the latter.
• Stephen Moore, a columnist for The Washington Times, is a senior fellow at The Heritage Foundation and an economic consultant with Freedomworks. His latest book, co-authored with Arthur Laffer is “Trumponomics: Inside the America First Plan to Grow Our Economy.”
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