TWO PERCENT TAX INCREASE WILL NOT SAVE SOCIAL SECURITY
April 12, 2005
Some argue that raising taxes by 2 percentage points will eliminate Social Security's financial shortfall over the next 75 years, but such a claim is just plain wrong, according to a report by the Concord Coalition.
- In order for the tax increase to work, the new tax revenues would have to be saved and not spent -- a highly unlikely occurrence given the record in Washington over the last four decades.
- The tax increase primarily helps the solvency of the trust fund on paper, rather than actual cash flow problems: Social Security would still run an annual deficit by 2023, just 5 years later than under the current system.
In addition, the proposed tax increase is not insignificant. If enacted this year, it would amount to more than a $1.2 trillion tax increase over the next decade. According to the Concord Coalition:
- Increasing the 12.4 percent payroll tax by 2 percentage points amounts to a 16 percent increase in taxes paid or about $730 in additional taxes each year for a two-worker household making $73,000 annually.
- Taxes would have to be raised by 6 percentage points -- a 47 percent increase in tax burden -- to ensure Social Security has a positive cash flow through 2075.
Source: "A "One Percent" Tax Increase Will Not Fix Social Security's Problems," Concord Coalition, March 18, 2005.
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