Sen. Barack Obama fleshed out his plans to shore up the Social Security system Friday, telling a group of senior citizens in Columbus, Ohio that if elected president, he would advocate applying the Social Security payroll tax to annual incomes above $250,000.
Currently, the 6.2 percent tax is applied to all income up to $102,000 per year. Under Obama’s plan, income between $102,000 and $250,000 would remain exempt from the tax.
As we reported http://www.psmag.com/article/207 in a three-part series earlier this year, the Social Security system — while not in crisis — is in need of some long-term structural changes. Somewhere around the year 2041, the current surplus will be exhausted, meaning the system will be dependent upon the money it gets in from taxes in a particular year. That will be enough to pay 75 percent of the promised benefits (which will be significantly larger than today’s benefits, since they rise with inflation). To avoid such an outcome, experts suggest raising payroll taxes, increasing the retirement age or both.
Obama had spoken previously of making income over a certain level applicable to the payroll tax, but this speech was the first time he named a specific figure of $250,000.
Sen. John McCain has in the past called for a bipartisan compromise to address Social Security, telling the late Tim Russert last year that “tough decisions have to be made.” But Friday, Douglas Holz-Eakin, the Republican candidate's senior economic policy adviser, told the Associated Press McCain would not consider a payroll tax increase "under any imaginable circumstance."
The Obama plan is presumably politically palatable, given that the tax increase would only effect the wealthiest 3 percent of Americans. But there is something odd about a tax that applies to the poorest and richest Americans but largely exempts the upper-middle class.