Rethinking how Social Security is financed to foster job growth

As thoroughly frustrating as this presidential race has been, its many distractions won’t do anything about the underlying issues we face, like creating jobs and reforming the tax code.  When the smoke clears, we have to get back to addressing them. 

The presidential candidates have rightly pointed out income and corporate taxes are urgent need of reform.  But so is the payroll tax — the tax the late Sen. Daniel Patrick Moynihan (D-N.Y.) called “The Tax on Work.”  Eliminating it is one idea that we believe could transcend today’s polarized debate. It would honor work, raise middle class incomes immediately and provide a powerful incentive for creating millions of jobs. 

{mosads}Americans now must work and compete in a world which is transitioning quickly from assembly line work to jobs and careers requiring far different skills. The average high school graduate this year will probably have as many as six different jobs in two or three different careers. That requires that we re-think how our policies — tax, regulatory, education, and skill development – will affect employment.

Phasing out the payroll tax can provide a cornerstone for the high-growth, high-income, high-employment economy we need to build.  We are heartened that the unemployment rate has stayed under 5 percent for most of this year and that median family income rose in 2015. Yet even with that increase, median household incomes are substantially lower than they were at their peak in the late 1990s, 100 million adults are not working, and the percentage of the adult population that is working is 4.5 percent lower than it was at the end of President Bill Clinton’s Administration.

Most Americans pay more payroll taxes than income taxes. Eliminating the payroll tax would provide middle class families with a 7.5 percent increase in take-home pay.  Eliminating the employer share of the tax would remove one of the biggest disincentives to hiring, especially hiring low wage workers in minimum wage jobs, often the kind of jobs which offer the first leg on the ladder of opportunity.  After the 2009 stimulus, the Congressional Budget Office found that dollar for dollar, cutting payroll taxes for both employers and employees would have roughly twice the stimulative effects of infrastructure spending.

So why isn’t it at the center of tax policy debate?  Payroll taxes pay for Social Security, and challenging Social Security financing has long been the “third rail” of American politics, which few want to touch.  But it’s time for that to change.  The premise that payroll taxes on today’s workers will cover the cost of retirement benefits for their elders is no longer valid.  Few of those who have studied this matter believe that payroll tax receipts will be enough to cover benefits for much more than a decade.

That alone is sufficient reason to rethink how we’re going to keep our commitment to America’s workers. For example, we could consider funding Social Security with non-labor taxes on consuming things rather than taxes on employing people, so we no longer finance retirement benefits by undermining job and economic growth.  Non-labor taxes could be earmarked for Social Security just as payroll taxes are now.

How to pursue this Holy Grail? Next year, we’ll have an opportunity for a real debate on tax reform. Countless ways to change our insanely complicated tax system will be proposed.  It would be a service to all American workers to include in these discussions the one reform which would generate much faster job growth and ease the tax burden on employees and employers alike: eliminate the payroll tax and replace it with non-labor taxes.

Bill Brock is a former Republican U.S. Senator from Tennessee and served as US Secretary of Labor in the Reagan administration. Al From is founder of the Democratic Leadership Council and the author of The New Democrats and the Return to Power.

The views expressed by authors are their own and not the views of The Hill.