Under Ms. Warren’s Social Security plan, and not incorporating any other changes to the tax code, a family with one wage earner making $300,000 a year, for example, would pay an extra $7,400 in tax each year. For each additional dollar earned over that level, total federal tax obligations would rise to 39 cents, up from 27 cents today. (Those numbers include both taxes deducted from workers’ paychecks and those paid by employers, which economists believe are ultimately borne by workers.)
“This is a much bigger deal for more households than the wealth tax,” said Mark Zandi, chief economist at Moody’s Analytics, which analyzed Ms. Warren’s proposal at her campaign’s request. “The wealth tax is a mind shift, opening up a new source of revenue. In terms of the number of people impacted, this is much bigger.”
For those making millions of dollars and living in a high-tax location like New York City, the combined marginal tax rate — including federal income tax, Medicare and Social Security tax, and state and local income tax — would be about 63 percent. Sweden currently has the highest top overall marginal tax rate among rich nations, at 60.1 percent, according to the Organization for Economic Cooperation and Development.
Moreover, the Warren and Sanders plans would apply Social Security taxes to investment income for the first time, not just to earnings. That would make it harder for high-income people to avoid taxes by reclassifying their labor income as business income. This has the potential to reduce the accumulation of savings, and over time reduce investment in the economy.
Higher Social Security benefits are popular in public opinion polls. The tax increases proposed by Ms. Warren or Mr. Sanders would apply to a slim minority of earners: 4.6 percent, according to Moody’s Analytics.
Moody’s data also shows that the higher taxes would be paid disproportionately in Democratic-leaning states. The 12 states with the highest share of earners who would owe higher taxes all voted for Hillary Clinton in the 2016 election, led by New Jersey, Connecticut and Massachusetts.
“People who live in affluent areas and are making good money, are they going to jump with glee over paying more taxes?” said Representative John Larson, a Connecticut Democrat who is author of the congressional Democrats’ plan to expand Social Security benefits. “I can’t argue in good faith that people are sending me love notes from wealthy suburban counties.”