Exempting Most Americans From Taxes Will Raise Gov. Spending
Christopher Jacobs
While the putative Department of Government Efficiency represents a first step in controlling federal spending, other initiatives by the Trump administration could unfortunately have the opposite effect. Witness recent comments by Commerce Secretary Howard Lutnick describing the president’s goal as “no tax for anybody making under $150,000 a year.”
That type of policy sounds superficially attractive — after all, who enjoys paying taxes? But on both practical and philosophical levels, this proposal seems as unrealistic as it is unwise.
Practical Problems
For starters, this idea would uproot the payroll tax that funds Social Security and Medicare. (Lutnick didn’t explicitly say which taxes the idea would apply to, but “no tax for anybody” seems pretty unequivocal in encapsulating all of them.)
Under current law, workers pay a 12.4 percent payroll tax to fund Social Security and another 2.9 percent payroll tax to fund Medicare. (Employers pay half of the payroll tax rate, and employees pay the other half.) While the Medicare tax applies to all wage income, the Social Security payroll tax only applies until a worker hits the taxable wage maximum, an amount prescribed in statute that rises annually with inflation.
In 2025, the Social Security taxable maximum totals $176,100. Exempting all income under $150,000 from payroll taxes would eliminate the vast majority of the Social Security tax base and significantly undermine Medicare’s tax base as well. To put it bluntly, this policy would put a massive hole in two programs that already face sizable financial shortfalls.
