OPINION:
This week, Sens. Bernie Moreno, Ohio Republican, and Elizabeth Warren, Massachusetts Democrat, released a Social Security plan that would be one of the largest tax increases on American workers in U.S. history.
The program has no reforms — just more pay-in for an even lower return on your money. This is “fixing” the problem?
Just recently, government auditors confirmed that Social Security’s finances are a wreck and will start running out of money in approximately six years. That is, in large part, because Congress spent the pension money on other programs, so the money paid in was never saved.
If the CEO of a private company had misappropriated pension money like this, that executive would be tossed in jail.
When Congress passed this plan in the 1930s, the tax rate was 2%, and it applied to the first $3,000 of income. That would be the equivalent of about $70,000 in income today.
Today, the tax applies to income up to $184,500, at a combined rate of 12.4%.
You catch the drift here. Every time the Ponzi scheme of Social Security runs out of money, Congress does not fix the program; it raises taxes. It has done that 16 times! This would be the 17th time.
The Moreno and Warren plan would have no income cap. People would have to pay the earnings tax on income up to $300,000, $500,000 or $5 million. This is patently unfair.
People who earn more than $184,500 annually get only $1 back for every $4 they pay into Social Security (after accounting for average returns and inflation). This is the worst deal in history. Most of us would be better off burying the tax money in our backyards and earning NO return on the money.
Meanwhile, the massive tax increase on workers and businesses of all sizes — which pay half the tax — would be a devastating blow to the economy.
Raising the earnings tax by 12.4 percentage points on workers with earnings above $184,500 a year would push the highest tax rate in America from 39.6% to close to 52%. This would be the highest marginal tax rate on earnings since the stagflationary 1970s.
The senators openly acknowledge that, according to the Peter G. Peterson Foundation, this would represent a $3 trillion tax increase over 10 years. It would reduce work and investment incentives and slow the economy, potentially even pushing us into a recession.
How is throwing more people out of work going to save Social Security? Slow economic growth erodes the Social Security fund of money needed to pay benefits.
In other words, to “save Social Security,” Mr. Moreno and Ms. Warren propose to blow up the economy. Our saviors!
They write: “Lifting the income cap so that all income is treated the same would generate substantial revenue that would extend the solvency of Social Security for another generation.” That is duplicitous.
Because income above $184,500 would not “be treated the same.” The combined income and payroll tax rate on this income would be about 15 to 20 percentage points HIGHER for those making more than $184,500 than for those with incomes of less than $184,500 because of progressive income tax rates that rise with income.
It is easy to understand why a very liberal senator from Massachusetts, Elizabeth Warren, would want to raise taxes on “the rich.” (Although making $200,000 a year these days is a far cry from being rich.) Yet it is a mystery why any Republican would want to raise tax rates.
The Republican brand is said to be for lower taxes. It is the pro-growth party of marginal tax rate reductions that reward, rather than punish, hard work, investment, entrepreneurship and job creation.
Under the Moreno-Warren plan, Republicans become co-conspirators in a giant tax grab, which would so demoralize Republican voters that Democrats would win every election for the next 20 years.
By the way, self-employed workers would get the biggest punch in the nose from this tax plan because they pay both the employer and employee share of the tax.
The way to “save Social Security” is to allow workers younger than 30 to immediately deposit their payroll tax money into personally owned accounts. By tapping compound interest, this would pay them benefits three to four times higher. Every dollar of debt incurred to pay current retirees’ benefits would be offset by massive reductions in Uncle Sam’s future liabilities.
This would also, over time, eliminate trillions of dollars in unfunded liabilities, because future workers would receive their pensions from their private accounts rather than a government check.
Instead, Mr. Moreno has signed off on a plan that would blow up the economy and the Republican Party.
• Stephen Moore is a co-founder of Unleash Prosperity and a senior fellow at America First Policy Institute. He served as senior economic adviser to President Trump.
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