This follows the 2017 Tax Cuts and Jobs Act (TCJA), which slashed the corporate tax rate from 35% to 21% and reduced individual tax rates across the board. However, a closer look reveals who truly benefited: corporations and the wealthy.
High-income earners saw a significant boost, with the top 1% enjoying a 2.2% increase in after-tax income. Meanwhile, middle-class taxpayers received a temporary reprieve through a higher standard deduction—but also faced new caps on state and local tax (SALT) deductions.
Now, with plans to extend the TCJA tax cuts that disproportionately favor high earners while eliminating income taxes for those under $150,000, one critical question arises: Who will bear the remaining tax burden? The answer is either the middle class or no one—meaning the potential collapse of Social Security and Medicare.
The Illusion of a “Tax-Free” System for Workers
On the surface, Lutnick’s proposal to exempt lower-income earners from taxation sounds like a win for working Americans. However, as with most tax policies, the reality is more complex.
Social Security and Medicare Cannot Survive Without Tax Revenue
If the administration truly intends to remove both income and payroll taxes for those earning under $150,000 while maintaining the TCJA tax cuts, it would create an existential crisis for Social Security and Medicare—programs that millions of retired and working Americans rely on.
These programs are primarily funded through payroll taxes, which generated $1.23 trillion in 2023 alone—accounting for about 90% of Social Security’s revenue and a major share of Medicare funding. Without a continuous flow of payroll tax contributions from workers, these benefits would cease to exist.
Put simply, if enough income brackets are exempted from payroll taxes, these programs will be defunded entirely.
The Three Possible Outcomes
If this tax plan moves forward, one of three scenarios must unfold:
Massive Deficit Spending – The government could continue funding Social Security and Medicare by increasing national debt. However, this would be a difficult political sell, as it would require borrowing unprecedented amounts.
Drastic Benefit Cuts or Raising the Retirement Age – Benefits could be reduced, or the retirement age could be pushed so high that Social Security becomes meaningless. At an extreme, Americans might not qualify for full benefits until age 125.
New or Higher Taxes on the Middle Class – A national consumption tax (such as a value-added tax) or increased state and local taxes could be introduced to compensate for lost revenue. This would shift the tax burden back onto the middle class, effectively replacing one form of taxation with another.
There is no realistic economic model in which payroll taxes are eliminated for the majority of earners without dismantling these programs entirely. While Republicans have long discussed privatizing Social Security, this proposal may be the most aggressive attempt yet to achieve that goal.
Will the Ultra-Wealthy Pay the Difference?
Short answer: No. They never have, and the TCJA was never designed to make them start. There is no reason to believe this proposal would be any different.
The TCJA permanently cut corporate taxes, while individual tax cuts—those that offered some relief to the middle class—are set to expire by 2025. This clearly indicates who these policies are meant to benefit: corporations and the ultra-wealthy, whose tax breaks remain intact.
If the plan to eliminate income taxes for those earning under $150,000 is implemented, the financial burden won’t fall on the wealthiest—it will land on the middle class
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