The Rich Get Much, Much Richer

America’s rich are getting richer and they are getting richer at an astonishingly fast pace. A new study by The Wall Street Journal which looks at Social Security data found that “Highly paid employees received nearly $2.1 trillion of the $6.4 trillion in total U.S. pay in 2007.” The rich do not pay as much of their incomes out in social security taxes because the upper limit for deductions is capped at $106,800.

The news is bound to agitate an already agitated Administration which is faced with a Social Security fund that experts predict will run out of money in less that thirty years. It is almost certain that politicians and some economists will call for higher Social Security taxes on the rich which would help make up the growing deficit in the fund.

The Wall Street Journal figures do not include many executive incentives like stock options, so the numbers are actually “worse” than they seem.

The government has the alternative of passing legislation to impose a higher Social Security tax on the wealthy. That would be added to an excise tax for the affluent which is meant to help fund the healthcare initiative. It would also be added to higher tax rates to increase regular IRS receipts.

Most economists believe that at some point taxes become regressive and therefore undercut economic activity and consumer spending. Those limits are about to be tested and the results may be different from those that the proponents of the taxes assume.

Douglas A. McIntyre