Some Democratic tax proposals are focused on making millionaires and billionaires pay more, but other households would be affected as well. Neil Irwin of The New York Times points out Tuesday that many affluent professionals, far from billionaire status but earning incomes well above average, face “the biggest tax increase in recent memory” if some of the proposals were to take effect.
For example, the removal of the cap on Social Security payroll taxes, as proposed by both Elizabeth Warren and Bernie Sanders, would potentially create a double-digit tax hike for some households earning six-figure incomes.
In Warren’s version, income over $250,000 would be taxed at a 14.8% rate (including both employee and employer contributions), providing revenues to extend the program’s fiscal viability while also boosting monthly benefits by about $200.
“Under Ms. Warren’s Social Security plan, and not incorporating any other changes to the tax code, a family with one wage earner making $300,000 a year, for example, would pay an extra $7,400 in tax each year,” Irwin writes. “For each additional dollar earned over that level, total federal tax obligations would rise to 39 cents, up from 27 cents today.”
Moody’s chief economist Mark Zandi said the higher marginal tax rate would affect about 4.6% of earners, far more than would be affected by a wealth tax. “The wealth tax is a mind shift, opening up a new source of revenue,” Zandi told Irwin. “In terms of the number of people impacted, this is much bigger.”
And that could be a political problem for Democrats. The increased tax would fall disproportionately on households in Democratic-leaning states, according to Moody’s, with residents of New Jersey, Connecticut and Massachusetts hit the hardest.