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.
Create Appetite for More Government
That gets to the larger philosophical concern, as it relates to aligning citizens’ needs from government with their willingness to pay for said services. According to a Tax Policy Center analysis of the most recent Census Bureau data, the upper limit of the fourth quintile of household income stood at $153,000 in 2022. This data point indicates that roughly 4 in 5 American households would become exempt from any federal taxation under the proposal Lutnick outlined.
In this scenario, the federal government would soon face a proverbial 80/20 problem. That is, 80 percent of the public could demand any type of service or spending program they wanted from the federal government, knowing full well that only the “other” 20 percent would have to pay for it. It would turn Washington into an all-you-can-eat buffet — one where most people could send someone else their bill.
Lutnick claimed that exempting households with incomes under $150,000 from taxation could only happen once the federal government balanced its books. But Washington has little realistic shot of balancing the budget any time soon. And if there’s one thing that would guarantee deficits even higher than those we have now, it’s allowing the vast majority of Americans to pawn off the full cost of federal programs on a small slice of the public, even if they are “the rich.”
Bad as Warren’s Approach
Americans witnessed a similar version of this argument roughly six years ago, during the primary campaign for the 2020 Democrat presidential nomination. Back then, Sen. Elizabeth Warren, D-Mass., put out a single-payer health care proposal she claimed would not require any new contributions from middle-class families. But apart from the myriad gimmicks included in her plan, it had a fundamentally flawed premise: that individuals could consume as much “free” health care as they want, and it wouldn’t cost them a dime.
It is as illogical for Warren to claim the middle class wouldn’t have to pay anything for a(nother) major expansion of the federal government as it is for Lutnick to claim the middle class could receive all (or even most) of the services provided by that government currently for “free.” In both cases, the policies would lead to an explosion of federal spending that’s already out of control. Thankfully, both have little shot of getting enacted any time soon.
Lutnick’s comments illustrate one problem that defines American politics: We have a high-spending party and a low-tax party. But neither political party wants to take on the spending that is consuming an ever-larger share of the federal budget. Tackling that problem, and not claiming that most citizens can get all the government they want on someone else’s tab, is the only way to restore fiscal responsibility to Washington.
Jesus Christ is King
Comments are closed.