A very bad and wrong way to address Social Security's shortfall

This is one of those areas in which the Very Stable Genius's lack of a core set of principles causes trouble.

His position since his 2015 entry into the presidential sweepstakes has been hands off regarding Social Security.

It's untenable, as anyone with a lick of common sense can see.

Also, it gives opportunistic collectivists a justification to cook up even more untenable schemes, such as the Social Security 2100 Act:

“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.

Notice the point that I put in boldface. I am a freelancer. I write magazine articles and do radio news on a freelance basis. I have chosen to arrange my worklife that way of my own volition.

The tax code should not be used for behavior modification purposes. It should not be deliberately designed to influence my choices about how to work.

Big thumbs down on Larson's shiny object.