ABC News’ Teddy Davis, Sunlen Miller, and Gregory Wallace Report: Sen. Barack Obama, D-Ill., outlined a Social Security plan last week that helps inoculate him against Republican charges that he wants to hike payroll taxes on the upper-middle class. But the proposal would raise far less revenue — $847 billion less over ten years — than an idea he touted in an Iowa newspaper last year when he was seeking the Democratic nomination.
The substantial revenue difference between Obama’s 2007 idea and his 2008 plan will make it harder to shore up the federal retirement program.
Obama’s proposal, which he offered Friday in Columbus, Ohio, would impose Social Security taxes on income above $250,000 per year. He would continue to exempt income between $102,000 and $250,000 from Social Security taxes. Prior to Friday, Obama had kept open the possibility that he would impose the 12.4 percent Social Security tax on income as low as $97,500, the annually adjusted ceiling in place in 2007.
At present, income subject to Social Security taxes is capped at $102,000 per year. Eliminating that cap and imposing the Social Security tax on all income, as Obama suggested last year, would have raised $1.5 trillion over ten years, according to figures provided to ABC News by the non-partisan Tax Policy Center.
Exempting income between $102,000 and $250,000 from higher Social Security taxes and imposing it only on income above $250,000 as Obama formally proposed last week, would raise $629 billion. The net result is that the plan Obama unveiled last week would raise $847 billion less than the idea he floated last year.
"[A]ssuming that all of the additional revenue goes into the Social Security trust fund and benefits would not rise for high earners, the proposal would close less than half of the trust fund’s long-run deficit," writes Len Burman, the director of the Tax Policy Center.
Burman also warns that Obama’s proposal could have the unintended consequence of providing an "enormous incentive" to those making more than $250,000 per year to "hide income from the IRS or to make earnings look like capital gains (which Obama would continue to tax at far lower rates than other income) or business profits (which are subject to income tax but exempt from payroll tax)."
While the proposal Obama outlined last week is not as far-reaching as the idea he floated during the primaries, he still has gone much farther than Sen. John McCain, R-Ariz., who has not offered any specific measures for bringing future Social Security revenues in line with outlays.