The ‘Strengthening Social Security by Taxing Dynastic Wealth Act of 2019’ Explained
As we’ve discussed, left-leaning proposals to protect Social Security tend to raise taxes on the wealthy, without increasing their benefits, so that they pay more into the system.
One example is Senator Chris Van Hollen (D-MD)’s Strengthening Social Security by Taxing Dynastic Wealth Act of 2019. The bill would raise taxes on estates worth more than $3.5 million and then direct the money raised to Social Security specifically.
For background: The estate tax is a tax levied on all the wealth and property owned by a person when he or she dies before it is distributed to heirs (if there are any). To protect small businesses and family farms from being unfairly taxed when they change hands, the tax applies only to estates worth over a certain value, or “threshold” in tax-accounting lingo.
Over the past 11 years, the threshold at which the estate tax kicks in has been raised to $11.58 million, and the tax rate itself has been lowered significantly, so advocates argue the bill would simply return the estate tax’s specifications to their 2009 levels. In other words, the bill would lower the estate-tax exemption threshold to $3.5 million for deaths occurring in 2020 or later, as well as introduce a range of tax rates from 18 to 45 percent.
The SSA estimates that this bill would increase revenue to Social Security’s trust funds by about $3.1 trillion. ss1 Although it wouldn’t be enough to put the trust fund on a path to solvency, the bill would buy it some much-needed time: It would delay insolvency for four more years.
Proponents argue that, because Social Security doesn’t tax income above $137,700, it lets the wealthy off easy and that they should be asked to contribute more to keep the program running.
Opponents say the bill would set a dangerous precedent. They argue what makes Social Security different from other welfare programs is that people “earn” their benefit: How much they pay into the program determines how much they get out. But this bill would sever that link between how much you pay and how much you receive, because people would be asked to pay more without seeing a corresponding increase in their benefits.
Don’t know who to believe? Click here to read the SSA’s report on Senator Van Hollen’s legislation and make up your own mind.
ss1 In net present value for the 75-year period