According to the NYT, over 200 Democrats have signed on to a bill that would eliminate the Social Security deficit and permit some increase in benefits by raising the payroll tax and applying it to incomes over $400,000. Is that a good idea?
Yes and no. Yes, the objective is a worthy one. The deficit is a serious problem that needs to be fixed, and the potential political gains from protecting Social Security are obvious. Any proposal that forces the GOP to choose between donors and elderly reactionary supporters clearly has some merit. But no, the Democrats have chosen to increase the wrong tax.
The suggested payroll tax increase will: (a) effectively reduce wages at a time when stagnant wages are a huge social problem; (b) transfer wealth from struggling working millennials to more affluent elderly people; (c) increase the cost of labor, thus making automation and offshoring more attractive; and (d) force employers and employees to shoulder obligations which rightfully belong to society as a whole. In addition, I don’t see any obvious justification for the doughnut hole, which will undoubtedly be the source of GOP derision if the legislation actually goes somewhere, which is unlikely before the next election.
Whatever its political merits, this bill represents bad policy. It should be rethought as soon as possible.