Opinion: The tax shock that could save Social Security

If they come for our Social Security and Medicare checks in a few years’ time – and there is an ominous chance that they might – the month just past will be worth remembering.

It was in June 2021 that we got clear confirmation that we could rescue our country’s retirement system simply, fairly and without breaking a sweat. So it will be interesting to see if we can summon the political will to do it: Interesting, as well as, er, a matter of life and death for tens of millions of senior Americans.

I confess I’ve been surprised that there haven’t been riots in the streets over this month’s ProPublica revelations that the people who actually own America aren’t paying taxes like the rest of us. ProPublica, a nonprofit investigative public interest website, got hold of the secret tax filings of the superrich.

The key finding: The rich – and I mean, the really, really, really, really rich, not some guy making $5 million a year – are paying almost nothing. From 2014 to 2018 the richest 25 Americans banked $400 billion in gains, ProPublica found. Their tax rate? Try 3.4%.

No, really.

What’s your tax rate?

Even the guy busing tables is paying 15.3% on his first dollar. (Those are the payroll taxes being taken out of his paycheck, though in a clever bit of trickery half of the tax is hidden and paid by the employer.)

The reason the super, super rich are paying almost no taxes is because our code taxes labor but not wealth. (A top tax expert explained it to me more than a decade ago: You’ve got $10 billion in stock but want to get your hands on some cash? Don’t sell your stock and pay taxes. Instead, just go to a Wall Street bank and borrow, say, $1 billion cash with your stock as collateral. You’ve now pocketed money without paying a nickel to Uncle Sam).

This is the biggest problem with the tax code.

No, it’s not about marginal tax rates on income. Sure, we can argue about whether a celebrity or top athlete should be paying 37% federal tax on their $20 million income, or 38% or 40%. But before we argue about whether millionaires should pay more taxes, can we not at least all agree that billionaires should at least pay some taxes? Is that really a radical, “socialist” point of view?

What does this have to do with Social Security and Medicare? Tons. The retirement system is running out of money. Under current law the Medicare Hospital Insurance trust fund is due to become insolvent in 2024. The Social Security trust fund, in 2035.

The Social Security trustees estimate that the present value of the hole in the accounts is about $17 trillion.

The people who want to run the system down claim it is “unsustainable,” and that it simply has to be cut. There isn’t enough money, they say. Some are proposing that Congress go into a closed room to start gutting the programs.

The Federal Reserve estimates that there is $130 trillion in household wealth in this country. (An astonishing $42 trillion, or about a third, is owned by the richest 1% of households.) So it wouldn’t take much of an annual wealth tax to rescue the retirement system. A 1% flat rate on absolutely everybody would do it.

What we do about this, like I said, is going to be interesting – as well as a matter of life and death.

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