Democrats' Social Security fixes rely on tax the rich proposals
Social Security is top among Democrats’ agendas this week, and one common thread appears to run through their proposed solutions: raise taxes on the wealthy.
Massachusetts Sen. Elizabeth Warren – a 2020 presidential hopeful – released her plan to shore up the solvency of the program on Thursday, which also includes an immediate boost of $200 per month for each of the program’s roughly 64 million beneficiaries.
Her plan calls for further increases in benefits for lower-income families, women, people with disabilities, among other groups.
In order to pay for her proposal, Warren wants to tap the income and investments of the top 2 percent of earners. Her plan raises the payroll tax on wealthy Americas to 14.8 percent, from 12.4 percent, to be split by those earning at least $250,000 and the companies they work for. She also wants to establish a new Social Security tax on net investment income of those same high-earners – who would be asked to contribute 14.8 percent of the lesser of net investment income or total income.
Meanwhile, Oregon Democrat Sen. Ron Wyden detailed his proposal to overhaul and increase capital gains taxes to The Wall Street Journal on Thursday, which would generate additional revenue to invest back into Social Security.
Capital gains taxes are currently paid on the difference between what an individual originally paid for a property or investment and what she sold it for – at the time it is sold.
Wyden is proposing that unrealized capital gains are taxed annually – meaning that these assets are taxed each year their value appreciates even if the owner does not sell them. Under his proposal, they would be taxed at ordinary income rates – meaning the top rate would increase to that 37 percent level, from less than 24 percent.
The current top capital gains rate sits at 23.8 percent. The highest income bracket tax rate, by contrast, is 37 percent.
The tax would only apply to individuals with $1 million in income or $10 million in assets over the course of three years straight.
On Twitter on Thursday, Wyden cited the “trillions of dollars in lost tax revenue” from millionaires and billionaires who aren’t paying the taxes they owe – adding his plan would invest that cash into Social Security.
House Democrats are considering an expansion of the program – the Social Security 2100 Act – which would rely on raising taxes, including immediately on wages above $400,000.
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As it currently stands, Social Security’s reserve funds are expected to be depleted in 2035, at which time the program will no longer be able to pay out benefits in full.