Moreno-Warren Social Security Tax Hike Would Hurt Working Families and Small Businesses

Sen. Bernie Moreno (R-Ohio) has joined Sen. Elizabeth Warren (D-Mass.) in calling for the elimination of the Social Security payroll tax cap, a proposal that would subject all wages and self-employment income to the program’s 12.4 percent payroll tax. In a recent op-ed for The Hill, CFE President Ryan Ellis warns that the proposal would amount to a significant tax increase on work, entrepreneurship, and small businesses without addressing the underlying cause of Social Security’s financial challenges.

A $3 Trillion Tax Increase on Work

The Social Security payroll tax currently applies only to earnings up to the program’s taxable wage cap. Eliminating that limit would expose additional earnings to the 12.4 percent tax, substantially increasing marginal tax rates for affected workers and business owners.

The economic effects could significantly reduce the amount of revenue the tax increase ultimately generates. Ellis cites Tax Foundation estimates showing that eliminating the cap would raise approximately $3.2 trillion over a decade under conventional scoring. After accounting for weaker economic growth and changes in taxpayer behavior, however, the estimate falls to just $1.5 trillion.

Small businesses would face particular pressure. Many owners of pass-through businesses effectively bear both the employer and employee shares of payroll taxes. Raising the tax on additional earnings would increase the cost of entrepreneurship, business expansion, and job creation.

Address Social Security’s Rising Costs

Social Security faces a growing financing gap as scheduled benefit costs rise faster than the dedicated revenue supporting the program. Ellis argues that policymakers should address that imbalance through responsible benefit reforms rather than relying on a large new tax increase.

One alternative is the Committee for a Responsible Federal Budget’s Six Figure Limit proposal. The plan would cap annual Social Security retirement benefits at $100,000 for couples filing at full retirement age, with adjustments for marital status and retirement year. According to the committee, the change would improve Social Security’s finances while leaving the overwhelming majority of beneficiaries unaffected.

Such an approach would begin by limiting exceptionally large benefits for affluent retirees rather than increasing taxes on workers and small businesses.

CFE Takeaway

Social Security needs reform, but eliminating the payroll tax cap would move in the wrong direction. Policymakers should address the growth in scheduled benefits before imposing higher taxes on the workers, entrepreneurs, and small businesses that finance the program.

Read CFE President Ryan Ellis’s full op-ed in The Hill, “Moreno’s Social Security tax hike would hurt working families, businesses.”