Barack Obama just found an extra $600 billion or so (over 10 years). He said today in Columbus, Ohio, that he wants to lift the income cap on Social Security taxes for folks making $250,000 a year or more. Here is a bit from his prepared speech:
Right now, the Social Security payroll tax is capped. That means most middle-class families pay this tax on every dime they make, while millionaires and billionaires are only paying it on a very small percentage of their income. That's why I think the best way forward is to adjust the cap on the payroll tax so that people like me pay a little bit more and people in need are protected. That way we can extend the promise of Social Security without shifting the burden onto seniors. And we should exempt anyone making under $250,000 from this increase so that the change doesn't burden middle-class Americans. This means that 97 percent of Americans will see absolutely no change in their taxes under my plan—97 percent.
Social Security guru Andrew Biggs over at the American Enterprise Institute has a run on a computer model a plan similar to Obama's. (Biggs extended the "donut hole" only to earners making up to $200,000.) Here is what he found (bold is mine):
Given the scale of the tax rate increases—a 12.4 percentage point increase in tax rates for the highest earners—it is striking how little Obama's plan would accomplish. The GEMINI model estimates that Obama's plan eliminates only around 43 percent of Social Security's 75-year shortfall. Even after the plan's implementation, Social Security would face a 75-year shortfall of around 1.12 percent of payroll. . . . [The] Obama plan's modest improvements to Social Security's financing come at a steep cost: top marginal federal tax rates inclusive of federal income, Social Security, and Medicare taxes would increase from 37.9 percent to 50.3 percent... . Put another way, the Obama proposal is equivalent to repealing the Bush administration's reductions in top income tax rates from 39.6 percent to 35 percent almost three times over.
And here are the 10 states that would get hit the hardest by the Obama plan. (Data courtesy of the Tax Foundation and TaxProf Blog):
1. New Jersey (10.7 percent of the state's workers would see their payroll taxes increase.)
2. Maryland (9.6 percent)
3. Connecticut (9.5 percent)
4. Virginia (9.0 percent)
5. Massachusetts (8.9 percent)
6. California (8.8 percent)
7. New York (8.0 percent)
8. Illinois (7.02 percent)
9. Colorado (6.96 percent)
10. New Hampshire (6.8 percent)