Would higher property taxes save social security?
Tens of millions of Americans rely on Social Security to make ends meet in retirement, and many more expect to use the program when they retire. Yet Social Security faces a financial crisis of epic proportions, as demographic shifts put pressure on its trust funds and threaten to leave it without enough money to pay full benefits by here. the mid-1930s.
Many proposals have surfaced over the years in an attempt to shore up Social Security’s financial position, with tactics ranging from means-testing and changes to year-over-year benefit adjustments to charges. higher social security costs and more extensive taxation of benefits. A new senator’s proposal focuses instead on using a renewed inheritance tax to help solve the Social Security problem, and the resulting debate has reignited a longer battle over taxation. successions more broadly.
How the new proposal would help social security
The latest new Social Security proposal comes from Sen. Chris Van Hollen (D-Md.), Who presented his case to the public last week. His bill, entitled Strengthen Social Security by Taxing Dynastic Wealth Act, seeks to close the financial gap in Social Security by increasing the estate tax revenues of wealthy Americans.
In particular, the legislation has two main elements. First, it would lower the current rate of inheritance tax from 40% to 45%. More importantly, it would reduce the size of estates that could benefit from full inheritance tax exemption. Under current law, estates reaching $ 11.4 million in 2019 would not have to pay any estate tax. Rather, the legislation would restore levels last seen in inheritance tax laws in the late 2000s, reducing the amount of the exemption to $ 3.5 million.
Van Hollen specifically criticized the inheritance tax changes included in the tax reform package that was passed by Congress and the White House at the end of 2017. By doubling the amount of the tax exemption on per capita estates, tax reform gave couples an additional $ 11 million that could pass. tax free. According to the senator’s calculations, this helped 1,900 estates save $ 4.4 million that they would otherwise have had to pay.
In order to tie inheritance tax to the social security debate, the Law on Strengthening Social Security by Taxing Dynastic Wealth would change the sources of social security funding to include inheritance tax revenues. . In other words, the law would divert money that currently goes into the federal government’s general fund and instead redirect it specifically to Social Security trust funds.
Reopen the debate on inheritance tax
Income and wealth inequalities have become hot topics in the presidential campaign, and this is not the first time that inheritance tax has been at the center of proposed policy changes. Senator Bernie Sanders (I-Vt.) Earlier this year discussed legislation that would reduce the estate tax exemption to $ 3.5 million. He went further than Van Hollen’s proposal, setting a minimum estate tax rate of 45% that would climb to 77% for estates valued at over $ 1 billion.
The main problem with using estate tax as a policy tool is that it is relatively small. A spokesperson for Van Hollen noted that even with the changes to the bill, the resulting income would cover just over a fifth of the estimated long-term deficit in social security funding. This would require other more extreme measures, such as increasing payroll tax levels, to generate enough revenue to completely close the funding gap.
Meanwhile, opponents of the measure argue that while inheritance tax aims to tax the rich, it often traps taxpayers who are not easily able to pay it. For example, farm families often have assets that, on paper, are worth enough to trigger inheritance tax liability. However, most of these families have almost all of their wealth tied up on their farms, and unless they sell their entire farm and give up their livelihood, they often struggle to find ways to pay taxes. land even with the help of special payment plans.
No easy answers
If Social Security’s financial challenges were easy to solve, it would have been done now. It is essential to keep an eye on what lawmakers are proposing as Social Security financing solutions so that you can adjust your financial planning accordingly – and voice your opinion on whether or not you agree or disagree with any proposals. like these.