Elizabeth Warren and Bernie Sanders want to shore up Social Security by raising the top rate of income tax by a third, and the top rate of capital-gains tax by more than a half. The Democratic senators have made the proposals in a new bill that would balance Social Security’s books, and expand benefits. It has little chance of becoming law. But it may instead be designed to move the so-called “Overton window” on taxes.
(The Overton window is effectively a public-relations concept, named after late policy wonk Joseph Overton, that describes the range of political ideas considered “acceptable” by mainstream discourse at any given time.) The senators’ new bill would add a 12.4% payroll tax on ordinary income above $250,000, raising the effective top rate by a third from 37% to 49.2%. The bill would also add a 12.4% payroll tax on investment income for those earning over $250,000, but this would not be restricted to interest, coupons and dividends. Instead it would apply to all investment income “as defined in the Affordable Care Act,” which includes all capital gains, long and short. The ACA — Obamacare—levied a 3.8% tax on such income for top earners. The latest proposal would raise the top rate of capital-gains tax by a half, from 23.8% to 36.2%. Read: Long live Social Security: chief actuary says Bernie Sanders’s plan would keep program alive another 75 years In an unusual move, the senators personalized their bill, pointing out how much some of America’s top executives earned last year and how much extra tax they would pay. Top of their list (naturally) was Elon Musk, liberals’ latest public enemy No. 1. In its current form, the bill would only apply to people earning more than $250,000. But the threshold has specifically not been indexed for inflation. This is designed to produce “bracket creep,” as more workers are included each year. Despite the talk about taxing “millionaires and billionaires,” the bill includes no wealth or asset taxes to tax the really, really, really rich. Sen. Warren pushed wealth taxes when she ran for president a few years ago, at one point proposing a top rate of 6% of net worth per year for the mega rich. That idea seems to be on the shelf for now. Neither senator’s offices responded to requests for comment. The timing of the bill is hardly a coincidence. We are entering into what could be a prolonged battle over the future of Social Security and Medicare, whose trust funds are due to run out of money within the next 10 or so years. The issue intersects with the current battle over raising the debt ceiling, in which Social Security and Medicare spending may be on the block. Some in the Republican party want to tackle the problem by cutting projected future payments. (Proposals typically focus on reining in benefit growth for the better-off, and would only apply many years down the road.) Warren and Sanders, from what Howard Dean once called “the Democratic wing of the Democratic Party,” are staking out the liberal alternative. Whether this succeeds in moving the Overton Window is going to be another matter.