The proposals by Democratic presidential hopefuls to tax the wealth of billionaires have received a lot of attention.
But it is their plans to hike payroll taxes that would have the biggest impact on voters.
Elizabeth Warren and other leading Democrats have said that they would impose a stiff payroll tax hike on higher-income families. In Warren’s proposal, she would impose a 14.8 percent payroll tax on workers with incomes above $250,000.
Currently, Social Security payroll taxes amount to 12.4 percent for incomes up to $132,900. Incomes above that level are not taxed and do not contribute to a worker’s future Social Security benefits.
Warren’s plan would have the tax kick back in on incomes above $250,000. And the rate would rise to 14.8 percent. Like the current tax, this would be split between the employee and the employer.
If the wealth tax is a “billionaires tax,” this would be a “hundred-thousandaires tax.” It would hit the pocketbooks of around 5 million households.
The tax on higher incomes would not result in higher benefits. Breaking with its roots as an earned entitlement, Social Security would become a wealth transfer system.
“The result would be a large tax increase on high earners, even before other changes a Democratic administration might contemplate, such as increasing income tax rates or taxes on investment income,” New York Times writer Neil Irwin explains. “The top earners facing new Social Security taxes would not see their future benefits rise commensurately; rather it would amount to a transfer from high earners to low- and middle-income Social Security recipients.”
This could cause some political trouble for Warren and other advocates of payroll tax hikes because the higher taxes would be paid disproportionately in Democratic-leaning states, according to data from Moody’s. Irwin describes the tax proposals as “a test of what affluent liberals are willing to sacrifice to accomplish progressive goals.”
According to Warren’s tax plans, high-income households would also be hit by a 14.8 percent tax on investment incomes. This tax would apply to individuals with incomes above $250,000 or households with incomes above $400,000.