How to Raise Revenue without Harming Middle Class
By Joel D. Joseph
In order to save Social Security, raise revenue and reduce the federal deficit, we don't have to impose tariffs and gut many federal programs. The cap on Social Security taxes (FICA) is now $168,600. If you earn more than that, there is no additional Social Security tax. Multibillionaire Warren Buffett suggests that we should remove this cap and tax all income for Social Security. Buffett can afford to pay a little more tax. So can Elon Musk and Jeff Bezos. Most people earning more than $168,600 can afford to pay a little more Social Security tax.
According to the Social Security Trustees, removing the cap would raise an estimated $3.2 trillion over 10 years or about $330 billion per year. This additional revenue would close about 53 percent of the 75-year funding gap for Social Security.
Another proposal Warren Buffett has supported is raising the full retirement age slowly to age 70. Currently, the full retirement age is 66 and one-half. With life expectancy increasing, people are living longer and spending more years in retirement. Gradually increasing the full retirement age will help increase the Social Security Trust Fund so that future generations can have a secure retirement income. With fewer private pensions, and with more people relying solely on Social Security to fund their retirement, we must make changes to Social Security taxes and then gradually increase the age of retirement.
Corporate Taxes
During the first Trump administration, the corporate tax rate was cut from 28% to 21%. This cost the Treasury more than $100 billion per year. The top personal tax rate is now 37%. Why should corporations pay a lower rate than humans? The Supreme Court ruled that corporations have constitutional rights and should be treated the same as individuals, not better than individuals. Citizens United v. Federal Election Commission, 558 U.S. 310 (2010).
Corporations don't have to pay college tuition, childcare or buy food; but people do. The U.S. Department of the Treasury projects that increasing the corporate tax rate back to 28% would raise approximately $1.4 trillion in revenue over 10 years. Raising the corporate income tax to 37%, or equal to what people pay, would raise $3.2 trillion over ten years.
Our national debt is now over $36 trillion and rising. Increasing corporate income taxes will significantly help pay down the deficit.
Capital Gains Taxes
Long-term capital gains are generally taxed at 15%. The Congressional Budget Office and the Joint Committee on Taxation estimates that capital gains tax treatment costs the federal government from $120-150 billion per year or $1.2 to $1.5 trillion over ten years.
In 2011, President Barack Obama signed Executive Order 13531 establishing the National Commission on Fiscal Responsibility and Reform (the Simpson-Bowles Commission) to identify "policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run". The Commission's Final Report recommended that we should eliminate the preferential tax rate for long-term capital gains. This proposal was never implemented.
Why should a Wall Street trader pay a lower tax rate than a blue-collar worker who toils for 40 hours a week or more building houses, manufacturing cars or repairing your plumbing problems? All income should be treated the same. It would make more sense to charge a higher tax rate on capital gains than for workers who use their muscles and brains for work.
Carried Interest
The "carried interest loophole" refers to favorable tax treatment for certain compensation received by private equity, venture capital and hedge-fund managers. The Congressional Budget Office and the Joint Committee on Taxation estimate that the carried interest loophole costs the treasury between one and two billion dollars per year. This is a variant of the capital gains loophole and both should be closed.
Conclusion
If all of these tax changes are made, the federal government will be able to pay off the federal deficit and strengthen the Social Security Trust Fund without costing the middle class a dime.
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