Addressing Affordability

Let Workers Keep More of What They Earn

6/23/26

I’m a bit tired of hearing the Democrats castigating Trump for not fulfilling his promises to bring prices down. That promise was fanciful in the first place, in that he had no plans for accomplishing it besides simply claiming it would happen: and, in fact, he took actions that caused prices to rise further. Specifically, his tariffs and the war with Iran have both unambiguously contributed to higher prices and inflation, exacerbating the affordability crisis felt by many Americans. Without question, reversing those tariffs should be the first order of business if and when Democrats reclaim power. Unfortunately, no such quick fix seems available to reverse the higher prices that derived from our war with Iran. We’re likely to have to suffer those consequences for quite some time, even after hostilities cease or otherwise transition to a lower level of conflict.

Beyond committing to reversing – or better still, eliminating – the tariffs, I don’t believe the Democrats have adequately articulated policies to address affordability. From what I can tell, they’re just as guilty as Trump of saying that they will bring prices down, without telling us how. To be clear, except for lowering tariffs, neither party has the capacity to do much to lower prices, per se. They can, however, enact policies that generally make things more readily affordable, particularly for those operating at lower income levels. These policies, however, generally won’t lower prices per se; rather, they shift the burden of who bears the cost and in so doing ameliorate the affordability crisis for those most affected.

Consider health care. The policy championed by Democrats to expand health insurance coverage by restoring some or all of the subsidies that had been eliminated under the One Big Beautiful Bill Act of 2025 is sound. Unquestionably, these subsidies defrayed the cost of health care for a considerable portion of those covered, but for those priced out of this insurance without access to these subsidies, the affordability crisis is especially acute.

The health care element of the affordability problem is obviously significant, but the Democrats need to offer policy prescriptions that address affordability more broadly – not just protecting the uninsured who happen to get sick. To address the affordability issue more broadly, Congress needs to enact a significant change in the federal tax laws. Unfortunately, I think the likelihood of a dramatic change like the one I will propose falls between slim and none, but the idea still deserves serious consideration.

At the risk of being charged with tilting at windmills, here goes: I’d like to see the Democrats come out for eliminating payroll taxes. Bear with me….

Currently, payroll taxes generate approximately 35 percent of federal revenues collected. These taxes are levied against wage income and earnings of the self-employed. My proposal would eliminate the employee portion of payroll taxes while keeping the payroll taxes paid by employers in effect, with income tax rates adjusted upward to make up for the lost tax revenues from this revision. As it works now, a tax rate of 6.2% is paid by the worker with an equal amount paid by the employer, which goes towards Social Security. (Self-employed workers pay the combined 12.4%.) The income subject to this tax, however, is capped. The tax rate designated for Medicare is 2.9%, again split between employee and employer. Income subject to this tax, however, is not subject to any cap. Employees are also subject to an additional 0.9% tax rate, applicable only to high earners (more than $200,000 for single filers or $250,000 for joint filers).

The effect of the cap on taxable earnings dedicated to funding Social Security is that it makes the overall payroll tax structure regressive. Consider three workers, filing singly. Worker A earns $100,000 per year, Worker B earns $300,000, and Worker C earns $500,000. In 2026, the cap on income subject to the Social Security portion of the payroll taxes is $184,500. Thus, Worker A’s payroll tax liability would be $100,000 x 6.2% + $100,000 x 1.45% = $7,650, for an effective tax rate of $7,650/$100,000 = 7.65%. Worker B has a tax liability of $184,500 x 6.2% + $300,000 x 1.45% + ($300,000 - $200,000) x 0.9% = $16,689, for an effective rate of $16,689/$300,000 = 5.56%. And finally, Worker C has a tax liability of $184.500 x 6.2% + $500,000 x 1.45% + ($500,000 - $200,000) x 0.9% = $21,389 or an effective rate of $21,389/$500,000 = 4.28%. It should be clear that higher earning workers pay a lower effective tax rate – i.e., the definition of a regressive tax regime.

(Congress enacted the 0.9% payroll tax for high-income earners as part of the Patient Protection and Affordable Care Act of 2010 as an effort to make payroll taxes less regressive. They simply didn’t do enough.)

The first point to make is that money is fungible. As such, the designation of some taxes to be dedicated for certain purposes and other taxes for other purposes is an artifact of prior legislation, but it’s wholly arbitrary. The alternative structure that I am proposing would deposit all tax receipts into one pot to finance any and all necessary federal expenditures. Fears about the Social Security system going bankrupt arise only because these expenditures have been defined as being other than general obligations on a par with every other government expenditure. The idea that Social Security benefits must necessarily be funded solely by revenues from payroll taxes or that we can’t have Social Security benefits without payroll taxes is simply a canard. That issue notwithstanding, the real reason for doing away with payroll taxes for wage earners is that this revision would make a serious dent in the problem of affordability. Essentially, I’m arguing for lower-income earners to keep more of what they make. That would make a difference.

Economists widely agree that the most efficient way to address the crisis of affordability is to put more money in the hands of those at the lower end of the economic ladder. Those funds, however, necessarily would have to come from somewhere, and the logical source would have to be from those at the top. Put another way, some redistribution of income would be required to make any significant inroads on ameliorating problem. As it happens, this realization has been recognized on a bipartisan basis, as reflected by a NY Times op-ed authored by Bernie Moreno (R – Ohio) and Elizabeth Warren (D – Massachusetts). Their piece argues for eliminating the cap on the income subject to the Social Security portion of payroll taxes. This adjustment would be a move toward greater progressivity – just not by enough.

The adjustment to the tax code that I am suggesting is one that is tax neutral – i.e., the reduction of payroll taxes collected would be offset by raising marginal tax rates on income taxes. I gave the following task to Copilot AI: Assume individual payroll taxes are eliminated, while keeping payroll taxes paid by employers in effect. By what percentage must each of the marginal income tax rates be raised to make up for the lost payroll taxes? According to AI, the marginal tax rates would have to be adjusted upward by a factor of 35.2%, as per the following chart, which shows the current and proposed marginal tax rates, as well as the respective income ranges for both single filers and married couples filing jointly.

I then asked AI to calculate the break-even income levels for single filers and married couples filing jointly, such that they would be paying the same tax amount under the current and the revised regime. Those break-even income amounts were $145,000 and $450,000, respectively. It should be understood that individuals and households having lower incomes than those break-even amounts would see their condition with respect to affordability improved, while those with higher incomes would necessarily be bearing that burden.

Ultimately, if Democrats want to do something meaningful about the affordability crisis, this plan deserves their consideration. Circumstances call for a bold approach – not just tinkering around the edges.

Have feedback? Add a comment or send me an email at igkawaller@gmail.com. And if you like the ideas expressed, please hit the “like” button; and share this link with anyone who you think might be interested.