Mitt Romney’s Case for Higher Social Security Taxes

By David R Henderson. Excerpt:

"Romney does advocate one particular tax increase that I’m deadset against. He writes:

I have long opposed increasing the income level on which FICA employment taxes are applied (this year, the cap is $176,100). No longer; the consequences of the cliff have changed my mind.

Notice that this isn't a tax on wealth. It’s a tax on income.

His basic argument is the Willie Sutton explanation for why he robbed banks: “That’s where the money is.”

But Romney doesn’t consider two things: (1) whether increasing that tax threshold is fair, and (2) what would be the consequences for the economy.

First, it’s not fair. Social Security is a bad deal for higher income people. They already get very little additional benefit for the additional taxes they pay. Raising the threshold would make that worse. I don’t say this as someone who would be directly hurt. It’s true that I still pay Social Security on my net business income. But that income is well below half of the current threshold and so I would likely never be affected directly. Rather, I say this as someone who thinks high-income people don’t suddenly lose their right to be treated fairly simply because they are high-income.

Second, raising the threshold would suddenly subject a lot of higher-income people to dramatically higher marginal tax rates. Romney doesn’t specify a threshold, but let’s speculate that he advocates raising it to $200,000. There are probably a few million US residents currently making between $176,000 and $200,000 annually. If they were self-employed, they would suddenly be paying a tax rate that is 12.4 percentage points higher than what they have been paying. If they are married and have earning spouses, they are probably in a 22% or 24% federal tax bracket. They also pay a 2.9% tax rate for Medicare. If they are in a state with an income tax, they probably pay a marginal tax rate of at least 4%.

So add up their current marginal tax rates, assuming the 24% federal rate, and you get 24 + 2.9 + 4 = 30.9 percent. That’s bad but not horrible. But then add the 12.4 percentage points and you get a total marginal tax rate of 43.3%."