While so-called “Medicare for all” is grabbing the most headlines, a House Ways and Means subcommittee has held four separate hearings on the looming insolvency of another big entitlement program: Social Security. Subcommittee Chairman John Larson, D-Conn., recently released a bill to shore up Social Security’s funding through myriad new tax increases and 200 of his Democratic colleagues have signed on as co-sponsors.
I testified on Wednesday at a hearing where this bill, the Social Security 2100 Act, was the focus. I was invited to offer some remarks on a group that does not get much attention in the conversation regarding Social Security: young people. My comments focused mostly on millennials, because that is the group for which we have data on their working lives, but the broader consequences to the future of the workforce should be explored before plans to hike taxes on workers and employees is viewed as the silver bullet for the program’s sustainability.
The bill would hike the payroll tax 2.4 percentage points, to 14.8%. While almost half of workers do not pay income tax, the payroll tax is the largest tax most workers pay. Increasing it confiscates wealth for workers that could otherwise be used to save and build equity.
This strikes workers at the beginning of their career particularly hard, not just because it deprives them of a longer window for savings, but also because millennial workers are different from other generations in significant ways. For one, they are more likely to start their own business. Over a third of millennials operate a “side hustle” in addition to their full-time job. This means many young people in the workforce today are not only employees, but potential employers as well. But as a sole proprietor, they would be responsible for both the employer and employee sides of the payroll tax hike in these plans, potentially increasing their payroll taxes by thousands of dollars.
The consequences to economic mobility should be obvious: A payroll tax hike makes each hire for an employer more expensive, and data shows that employers will respond by cutting wages. This will diminish income mobility for workers, particularly those at the beginning of their careers. It will put wage increases further out of reach for workers. What’s more, the income exemptions in this bill are not indexed to inflation, meaning they eat up a larger share of employee income over time. This will further erode young people’s earnings opportunities as they move up the income ladder.
Millennials already lag other generations in terms of wealth accumulation. Workers at the beginning of their careers see a higher share of their income go to payroll taxes, and fixed costs of living take up a higher share of their take-home pay. Increasing the payroll tax further diminishes the amount of money they have available to save and create wealth over time, and exacerbates this disparity between what is now the largest living generation in the country and other generations that have come before it. What’s more, data indicates that lower-income households make up for the loss of income by shouldering more debt, undermining opportunity for young workers to amass their own wealth.
The workforce today looks different than the workforce of different generations — this is a feature, not a flaw, of the American system. As our economy evolves, however, so too must our public policy. For many millennials who entered the workforce during the recession, the recent economic expansion has been their first opportunity to grow in their careers and build wealth. Proposals that would force this cohort to shoulder new tax burdens threaten to undermine this progress. While Congress has enhanced private savings opportunities to the widespread benefit of workers, it has yet to tackle the looming fiscal insecurity of government spending. Congress should consider bipartisan methods of meeting this challenge without simply redistributing the burden to future generations.
Mattie Duppler (@MDuppler) is a contributor to the Washington Examiner’s Beltway Confidential blog. She is the senior fellow for fiscal policy at the National Taxpayers Union. She’s also president of Forward Strategies, a strategic consulting firm.
