NCPA - National Center for Policy Analysis


January 15, 2007

Raising payroll taxes would prove devastating to working Americans, small business and the economy as a whole. Worse, it would only serve as a short-term band-aid to Social Security's financial woes, says Rep. Mike Pence (R-IN).

According to the Heritage Foundation:

  • Eliminating the cap will increase taxes by $484 billion over five years.
  • This 12.4 percentage point marginal tax rate increase would hit middle-income families struggling to make ends meet, pay for college and save for retirement.
  • Much of this increase will be borne by three million small-business owners who pay both the employer and employee portion of the tax hike.
  • Overall, the entire economy would slow by 2 percent to 3 percent.
  • In exchange for this massive tax increase, Social Security's financing will be preserved for roughly seven years.

Further, any Social Security deal needs to be accurately portrayed to the public.  Americans did not reject Social Security reform or personal retirement accounts. They rejected the entire debate and how it unfolded.  There are ways to improve this, says Pence:

  • The administration needs to be clear that a Social Security compromise must reject tax increases of any kind; meaning no increase in the payroll tax rate and no change in the cap apart from the current indexing that already increases eligible income on an annual basis.
  • Social Security reform must be properly understood -- it is not about achieving solvency; it is about improving the system so that it offers a better deal for younger Americans through personal savings accounts.
  • The administration should submit a budget that fully protects the Social Security surplus from being used to subsidize government largesse by offering a budget aligned with those expectations, or propose cutting the payroll tax immediately to end the historic practice of over-collecting for a pay-as-you-go system.

Source: Mike Pence, "No New Taxes," Wall Street Journal, January 15, 2007.

For text:


Browse more articles on Tax and Spending Issues