Dissent Of The Day, Ctd

A reader writes:

Your reader stated:

Someone earning $156,800 would have a tax increase of $6,200 under this proposal.  If that person supports a family of four in the DC metro area on that salary, are they rich?  Certainly not.

Your inbox is probably already full with dissents to this idiotic statement.  It always amazes me just how clueless some of my wealthier fellow citizens are about how the rest of the country lives.  Even in D.C., $156,800 for a family of four would be firmly in the upper class of incomes - maybe not "rich" like Warren Buffett or Bill Gates but certainly far better off than 85% of the country AND the District.  Households making over 150k are in the top 7% for the country and the top 15% for D.C.  It's these type of loony assertions about lack of wealth that make me (and probably many many others) far less sympathetic to arguments against raising any taxes on the rich.

Another writes:

I find your reader's anger at the suggestion that we raise the limit on social security taxes laughable.  A family of four making $156,800 already gets plenty of breaks from the government:

a credit for being married; for having kids; for mortgage interest; for their 401k contributions; for charitable donations; for employer-provided health insurance; for child care and even for using public transportation.  If they're long-time homeowners, they get a subsidy on their property taxes in many states.  They likely have capital gain and dividend income, which is taxed at lower rates than regular income.  They'll likely avoid the estate tax.  Every year, the AMT gets fixed so that it doesn't hit them.  Their marginal tax rates are lower than they were during the Reagan Administration.  And on top of all that, they want a regressive Social Security tax and benefit cuts for people who don't get quite so many gifts from the tax code?


Your dissenting reader objects to your characterizing the ceiling on income that can be taxed for Social Security as a "loophole", and calls it instead an "across-the-board marginal rate increase" of 12.4%.  Well, "Wow" back!  This argument could only be made by someone misled by the privilege of wealth.  I make over $106K per year, and every year in around late September I get an un-asked-for, automatic, and highly appreciated "raise" when that Social Secuirty tax deduction drops off my pay stub.  People who earn less than $106K do not get that raise.  I get a raise because I earn more than them.  How is that not perverse?  Why should the very part of my income that puts me in the top 15% (more or less) of wage earners not be subject to Social Security withholding?  Why should I get a bonus for being wealthier than people who make less than $106K? 

Believe me, I love getting that raise each fall, but I'm smart enough and honest enough to know that it is poor policy and definitely a loophole for high wage earners. It should be eliminated.


The reader's dissent is well taken, but there is a serious factual error.  The Social Security tax is shared between the employer and the employee.  The impact on the hypothetical DC couple would be 6.2%, not 12.4%.  This equates to around $258.00 a month.  It is hard to imagine that an additional $258.00 a month could have "serious detrimental consequences for labor supply and ... economic growth".  

There are no free solutions to addressing Social Security.  Raising the retirement age, changing the basis for inflation indexing, means testing benefits - each of these will have an impact on some constituency and the same $258 argument will be made.  If it was easy and popular to fix, it would have been fixed already.  

The irony is that, under means testing, the hypothetical DC householder is likely to lose more than $258 a month (and at a time when that income is more significant).