Social security decks the economy---turns inequality.

Social Security Expansion Act’s Widespread Economic Consequences

Senator Sanders stated that the Social Security Expansion Act will not raise “taxes by one penny on over 93 percent of American households that make less than $250,000.”20

That is not true. For starters, the bill’s tax hikes apply to individuals making $200,000 or more, which includes many people making less than $250,000. Moreover, that claim refers to a snapshot in time and does not account for the proposal’s unavoidable economic fallout.

According to the Social Security Trustees, only about 7 percent of people make over the taxable maximum in a given year, but “between 20 percent and 25 percent of individuals will earn above the tax max at some point during their working careers.”21

That only considers wage earners; factoring in all the small business owners (many of whom make less than $250,000 in wages) and savers and investors that would also be subject to higher taxes under the Social Security Expansion Act would increase the percentage of individuals who directly pay higher taxes.

Regardless of who pays higher taxes, the Social Security Expansion Act’s massive tax hikes would ripple destructively across the entire economy, including all other government revenues. Taking into account how people would respond to these new tax increases, it is almost certain that the Social Security Expansion Act would fail to make the program solvent and would cause large declines in other government tax revenues.

At a bare minimum, employers who have to pay higher Social Security taxes for their workers will reduce those workers’ wages by a near equivalent amount to the taxes, which will mean lower incomes subject to federal income, state and local income, Social Security, and Medicare taxes.22A study by Jeffrey Liebman and Emmanuel Saez that looked at workers’ earnings responses to changes in payroll taxes estimated that this shift in taxable wages to account for higher taxes on employers would reduce static revenue estimates by 20 percent to 25 percent.23

Although the Social Security Actuaries note that this change would cause employers to redistribute total compensation to accommodate for employers’ higher employee tax costs, the analysis does not include the impact of employers reducing workers’ wages on non–Social Security federal and state tax revenues. Based on the Social Security Actuaries’ estimate that this provision would generate $15.7 trillion in new revenues, upwards of $3 trillion of that could be lost to lower state and local tax revenues.

Adding in the negative impacts from behavioral changes would further reduce the actual revenue gains. Liebman and Saez estimated that the likely behavioral impacts of eliminating the payroll tax cap (as the Social Security Expansion Act fully accomplishes after about 15 years) would result in revenues equal to less than half of the static revenue estimates and could be so large as to result in zero net new tax revenue.24

Ibid.

By reducing economic output, jobs, and incomes, the Social Security Expansion Act would limit Americans’ ability to pursue what they desire and instead make them more reliant on the government. As rising federal deficits and debt increase the risks of a fiscal crisis, greater dependence on the government would make Americans more vulnerable to the consequences of a fiscal crisis, which could include significant cuts to government programs and even higher tax rates, or inflationary policies that make everyone poorer.

Social Security Expansion Act Is Only a Fraction of the Progressive Agenda

The Social Security Expansion Act’s $33.8 trillion in tax hikes over the next 75 years would only cover a small portion of progressives’ socialist agenda. Providing other things—like Medicare for all, free college, a universal basic income, and the “Green New Deal”—would cost roughly another $50 trillion to $90 trillion over just 10 years.

As Heritage Foundation analyst David Burton explained:

Even using lower cost estimates, confiscating every dollar earned by every taxpayer with incomes of $200,000 or more would only pay for about half of the progressive agenda. And that figure is based on the false assumption that people would continue to work, save, and invest when subject to a 100 percent flat tax. The reality is that progressive promises can only be funded by increasing taxes on the middle class from three to 10 times their current level, or, for a limited time, by dramatic and unsustainable increases in federal borrowing.25

The Social Security Expansion Act is a big step toward Bernie Sanders’s mathematically impossible and economically inconceivable socialist agenda. As history repeatedly demonstrates, socialist governments depress economic output and consign everyone but the ruling elite to drastically lower standards of living.26

The only reason that the Social Security Expansion Act’s proposed tax hikes could appear to generate $33.8 trillion in new tax revenues is because there has been sufficient private-sector economic growth and activity in America’s market-based democracy to generate enormous wealth and well-being that continues to grow from generation to generation. By proposing to bite the hand that feeds it, the Social Security Expansion Act would so drastically alter American entrepreneurship, work, and innovation that future policymakers would be grasping at straws to fund even a fraction of the size of government that exists today.