Taxing millennials will not save Social Security from fiscal woe
With a deal finally brokered in Congress to suspend the debt limit and blow through current bipartisan discretionary budget caps, politicians in Washington are seemingly prepared to once again place our national debt challenges out of sight and out of mind well ahead of the August recess.
But not all policymakers are ignoring the drivers of debt. The House Ways and Means Committee held a hearing this week on the Social Security 2100 Act. Having held four subcommittee hearings on the subject, John Larson and Tom Reed deserve applause for calling attention to the real dangers of allowing Social Security to continue to careen off its fiscal course. However, the Social Security 2100 Act does little to correct the destabilizing forces at play within our mandatory spending challenges.
In fact, the bill exacerbates those challenges by expanding benefits for beneficiaries while socking the next generation with all the costs. While demographic changes have placed increasing and foreseeable pressures on Social Security, the solutions for this slow moving catastrophe always seem to be the same proposal of shifting the cost to future generations.
This is precisely what the Social Security 2100 Act would do. While it laudably transforms Social Security into a solvent program, the price of doing so would be less mobility for young workers today because the legislation would raise the payroll tax from 12.4 percent to 14.8 percent. So as Andrew Biggs of the American Enterprise Institute points out, this increases the lifetime taxes paid by low and middle income earners by a fifth, without a guaranteed commensurate increase in the actual benefits.
As I remarked in testimony I gave on the bill, this results in workers at the beginning of their careers shouldering the larger share of the burden. This year marks the first year in which millennials overtake baby boomers at the largest living generation in the country. Workers in this generation are more likely to start or run a business than those in previous generations, and would be particularly disadvantaged by an increase in the payroll tax.
This is because the cost of the payroll tax is split between the employer and employee. As someone who knows from serving as both in a sole proprietorship, an entrepreneur is responsible for each side of the tax. With over a third of millennials today operating their own businesses in addition to their full time jobs, the payroll tax increase in the Social Security 2100 Act would be an enormous burden on their finances.
Not only would this proposal expose more of all the lifetime earnings of young workers to higher taxes, it also decreases their mobility and future earnings potential. We know from federal scorekeepers that the result is less income for workers because employers would cut salaries to pay for the higher payroll costs. For workers at the beginning of their careers, this means less opportunities for income generation. For entrepreneurs, this creates an additional barrier for scaling and growing their companies.
Even if not all young workers today is not operating a side hustle, they stand to lose opportunities for advancement and wealth creation if the Social Security 2100 Act is enacted. While nearly half of Americans do not pay income taxes, Social Security payroll taxes are the largest tax paid by the typical worker. Diminishing opportunities for future Americans may seem expedient in the near term, but it will not provide the type of lasting solutions needed to save entitlement programs for all of our generations.
Mattie Duppler is a Republican political strategist and the president of Forward Strategies. She also serves as senior fellow for fiscal policy at National Taxpayers Union. You can follow her on Twitter @MDuppler.
The Hill has removed its comment section, as there are many other forums for readers to participate in the conversation. We invite you to join the discussion on Facebook and Twitter.