A pivotal Senate Democrat would like to tax ordinary income and capital gains at the same rates and use the revenue to bolster Social Security.
Sen. Ron Wyden, D-Ore., ranking member on the Senate Finance Committee, unveiled a paper Thursday titled "Treat Wealth Like Wages."
Ordinary and capital income are treated differently under the tax code and taxed at different rates. Ordinary income is taxed at marginal rates ranging from 10% to 40.8%, while long-term capital gains and qualified dividends are taxed at rates that range from zero to 23.8%, depending on the taxpayer's income, the paper said.
Mr. Wyden would like to tax all income at the ordinary income rate, no matter the source of income.
Retirement accounts would not be affected under the proposal.
Only individuals with more than $1 million in annual income or more than $10 million in assets would be subject to the proposed accounting rules, "recognizing that wealthy taxpayers employ sophisticated accountants and are best equipped to comply with the system," the paper said.
Based on external revenue estimates of related proposals, the Senate Finance Committee estimates that the proposal would raise between $1.5 trillion and $2 trillion over a 10-year budget window, depending on the final details of the proposed legislation, the paper said. An additional $1.85 trillion each decade starting in 2020 would allow Social Security to pay full benefits until 2095, according to a Social Security Administration actuary estimate cited in the paper.
The latest Social Security trustees' annual report released in April projected that Social Security's two trust funds — one that covers retirees and their families and one that covers disabled workers and their families — will be out of money by 2035. On the retirement side, if no changes are made by 2034, Social Security revenue will cover only 77% of benefits promised, the report said.
In the paper, Mr. Wyden said he's still refining the proposal and welcomes feedback. If Democrats were to win a majority of Senate seats in 2020, Mr. Wyden would likely become chairman of the Senate Finance Committee.