Earlier versions of this article, including in the print edition of today's Washington Post, misstated the maximum tax rate on income exceeding $250,000 a year that Sen. Barack Obama has proposed as part of his Social Security reform plan. Under the Obama plan, the tax paid by employee and employeer would not exceed 4 percent.
Candidates Diverge on How to Save Social Security
Tuesday, July 8, 2008; Page A01
Sens. Barack Obama and John McCain are both proposing dramatic changes to Social Security, taking on the financially fragile "third rail of American politics" that Congress and recent presidents have been unable to repair.
McCain's aides said he favors a bipartisan approach and is open to working with Congress on finding a solution to the long-term solvency of the New Deal-era program, indicating he could support an array of ideas such as raising the retirement age, reducing scheduled increases in benefits and allowing younger workers to put money they currently pay for Social Security taxes into personal savings accounts. President Bush floated a similar idea for private accounts in 2005, but polls found it had little public support.
Obama has been even more specific. The Democrat from Illinois has proposed raising taxes on upper-income Americans to address projected shortfalls in Social Security, but his plan has been greeted with skepticism, even from some in his own party.
Under current law, income up to $102,000 a year is taxed for Social Security. Obama would create a "doughnut hole" by not imposing new Social Security taxes on income between $102,000 and $250,000. His aides said income exceeding $250,000 would be taxed at a rate of 2 percent to 4 percent, rather than the 6 percent tax that people pay toward Social Security on income below the $102,000 cutoff, which is matched by their employer's paying a 6 percent tax. Employers would probably pay an additional tax, but the total tax paid by both employee and employer would not exceed 4 percent of the amount of income earned over $250,000.
Experts predict that proposal would make up less than half of the $4.3 trillion shortfall Social Security is expected to face over the next 75 years.
Combined with Obama's proposed increases on income taxes for upper-income Americans and state taxes, Republicans argue, individuals who make more than $250,000 could face close to 50 cents in taxes on every dollar that they earned over $250,000 under a President Obama.
"If you believe you should pay more taxes, I am the wrong candidate for you. Senator Obama is your man," McCain said in a speech as he began an economic-themed campaign tour in Denver yesterday. "The choice in this election is stark and simple. Senator Obama will raise your taxes. I won't. I will cut them where I can. Jobs are the most important thing our economy creates. When you raise taxes in a bad economy, you eliminate jobs. I'm not going to let that happen."
At a news conference in St. Louis, Obama said that the Republican senator from Arizona offered policies that "are very much the same as those we have seen from the Bush administration."
Some Democrats are questioning Obama's decision to address Social Security at all. The program is expected to bring in less in taxes than it disburses in benefits sometime in the next decade, although the Social Security Board of Trustees estimates that interest on the program's bond holdings will keep it from running a deficit until at least 2041.
"From the standpoint of the Democratic Party, I would think it would make the most sense to leave it alone," said Dean Baker, an Obama supporter and co-director of the D.C.-based Center for Economic and Policy Research. "It's not an immediate, pressing issue."
Jason Furman, Obama's economic policy director, emphasized that the proposal is flexible and said that Obama would work with Congress to come up with any proposal on the topic. Furman said the campaign has not determined the extent to which Obama would raise taxes or whether people who made more than $250,000 would receive additional benefits.
Obama has ruled out raising the retirement age or reducing benefits, two other ideas some in Congress have touted for fixing the program.