Obama Floats Social Security Tax Hike

Sept. 22, 2007 — -- Sen. Barack Obama, D-Ill., is considering a major tax hike on the rich to shore up the nation's Social Security system.

"If we kept the payroll tax rate exactly the same but applied it to all earnings and not just the first $97,000," Obama wrote this week in an Iowa newspaper, "we could eliminate the entire Social Security shortfall."

Obama's idea, which he described on the op-ed page of Friday's Quad City Times as being "one possible option" and not a formal plan, would raise more than $1 trillion over 10 years by subjecting income of more than $97,000 to a 12.4 percent tax. Half of the tax would be paid by employees and half would be paid by employers.

Obama is floating the idea of a tax hike on the rich as a way of assuring lower- and middle-income voters that he sees an option for ensuring Social Security's solvency that would not burden them. Obama has been indirectly criticized by Sen. Hillary Clinton, D-N.Y., for suggesting on ABC News' "This Week with George Stephanopoulos" that a higher retirement age should be "on the table."

By suggesting the elimination of the Social Security tax cap, Obama has distinguished himself as the presidential candidate most willing to touch the "third rail" of American politics. No other major candidate has come close to offering a specific idea with the potential of generating as much revenue.

Obama's idea, however, also carries considerable political risk.

Eliminating the Social Security tax cap without changing the benefit formula could undermine support for the program among the roughly five percent of Americans who earn more than $97,000 per year.

"It would be a radical change in how the program has been designed," said Robert Bixby, executive director of the Concord Coalition, a non-partisan group that advocates a balanced budget. "It would end the contributory idea of Social Security, where you get back something for what you put in."

Obama's consideration of a tax hike is under fire from Republicans for its sheer size.

"It's not shocking that Sen. Obama would think a huge tax increase is a good idea," said Republican National Committee spokesman Brian Walton. "Sen. Obama would probably tax the air we breathe if that were possible, so it comes as no surprise that he would consider yet another attempt to raise taxes on the American people."

Although Obama's suggestion goes farther in raising taxes on the rich than any other major presidential candidate, he is not alone in toying with the idea.

Former Sen. John Edwards, D-N.C., has also talked about raising the Social Security tax cap. But he would do so in a more limited way than suggested by Obama.

While Obama has suggested imposing the 12.4 percent tax on all income above $97,000 per year, Edwards would only impose it on those making more than $200,000 per year. Income between $97,000 and $200,000 would continue to be exempt from Social Security taxes under the Edwards proposal.

"I do think we need to have a bubble above $97,000, probably up to about $200,000 so we don't raise taxes on middle-class families," Edwards said at Thursday's AARP forum. "But, above the $200,000, these millionaires on Wall Street ought to be paying their Social Security taxes."

The scope of the Obama proposal was not lost on a leading anti-tax group.

"With their proposals to raise Social Security taxes, it appears that John Edwards and Barack Obama are engaged in competition to see who can wreak more havoc on the economy," said Club for Growth spokeswoman Nachama Soloveichik. "Obama comes out the winner with his proposal to raise Social Security taxes on more Americans than Edwards proposed in his plan. But make no mistake: While Obama's plan is worse, both plans would significantly increase America's tax burden; devastate the economy, and turn Social Security into a full-fledged welfare program."

For her part, Clinton opposes both the Obama idea of imposing new taxes on those making $97,000 per year and the Edwards proposal to tax those making $200,000 per year.

Thus far in her presidential campaign, the former first lady has resisted all specific revenue-generating proposals for Social Security. While invoking her husband's record as president, Clinton said at Thursday's AARP forum that her focus would be on getting back to fiscal discipline in the non-Social Security portion of the budget. She argues that this will have the effect of extending the life of the Social Security trust fund as it did in the 1990s.

By not proposing elimination of the Social Security tax cap, Clinton has inoculated herself from the criticism that is now being directed at Obama.

But she is no stranger to the tax equity argument that one billionaire investor has made in advocating changes to the cap.

"Middle class and working families are paying a much higher percentage of their income [than wealthier Americans] -- that was Warren Buffet's position," said Clinton at a June 29 PBS debate, "When you cut off the contribution at $90,000, $95,000, that's a lot of money between $95,000 and the $46 million that Warren Buffet made last year. And he's honest enough to say, 'Look, tax me because I'm a patriotic American and I want to make sure our country stays strong and is fair.'"

ABC News' Jonathan Greenberger and Jacqueline Klingebiel contributed to this report.