Spending on Social Security benefits currently takes about 11.5 percent of taxable payroll. When total Medicare benefits are added in, the figure rises to more than 16 percent of taxable payroll. With other government health care, about 19 percent of the nation's taxable payroll is being spent on elderly entitlements today. I and II show elderly entitlement spending as a percent of taxable payroll under both the intermediate and pessimistic assumptions. Bear in mind that these forecasts assume that taxable payroll in the future will be the same, whether the tax rate is 15 percent or 80 percent.
Experience shows otherwise.
In the face of higher tax rates, people work less and avoid or evade taxes more. We have had little experience with tax rates in excess of 35 percent to 45 percent for middle-income taxpayers. But we have had a lot of experience with tax rates above the range for the highest income earners. In general, whenever we have increased the rate for the highest income earners, their total tax payments have gone down, not up. In other words, beyond a certain point, higher tax rates do not collect additional revenue.