Lift the Social Security Cap -- It Won't Hurt, But It Will Help

Barack Obama. A plan with a trillion dollar tax increase on America's hard-working families. Lifting the cap on Social Security taxes to send more of Nevada families' hard-earned dollars to Washington. Senator Obama said, "I think that lifting the cap [on Social Security taxes] is probably going to be the best option."

Hillary Clinton. A blueprint to rebuild the road to middle-class prosperity. Provide tax relief for the middle class and address Social Security without putting burdens on hard-working families or seniors. Strengthen Social Security and the economy by returning to balanced budgets.

—Official campaign flyer distributed by Nevadans for Hillary, January 2008

Back in January, even before things got really nasty in the Democratic primary, Barack Obama and Hillary Clinton were already going after each other about taxes and Social Security.

The Clinton campaign sent a flyer to Nevada voters before that state's January 19 Democratic caucuses, accusing Obama of planning to impose "a trillion dollar tax increase on America's hard-working families" by lifting the cap on income subject to Social Security taxes. Clinton, the flyer claimed, does "not want to fix the problems of Social Security on the backs of middle-class families and seniors."

The truth was something different. First, Obama did not exactly propose removing the cap, currently $97,500. (In other words, employers and employees each pay a flat percentage of the first $97,500 of each employee's salary, but no tax on the income above that.) He did discuss adjusting it as "the best way to approach this [reforming Social Security]," preferable to either cutting benefits or increasing the retirement age, later adding that he would consider keeping the exemption from $97,500 to around $200,000, lifting it only for any income above $200,000.

More important, lifting the cap would in no way increase the tax burden on middle-income families. Just under 6% of U.S. wage earners make more than $97,500 in wages, so even removing the cap altogether would raise taxes only for that small group.

Now, there is a legitimate progressive objection to Obama's discussion of fixing Social Security by adjusting the cap: any talk of reforming Social Security inevitably plays into the hands of those out to privatize it by trumping up a phony crisis. But that hardly seems to be the point of the Clinton campaign flyer.

Too bad it wasn't. Clinton gets it: in the past she herself has warned that acting as if Social Security is in crisis is "a Republican trap." Yet last October, an Associated Press reporter overhead her telling an Iowa voter that she would consider lifting the cap on payroll taxes as long as wages between $97,500 and $200,000 remained exempt—precisely the proposal she derides in the Nevada flyer.

Inside Social Security

Let's remind ourselves that Social Security, which cut poverty rates among the elderly from 35% in 1960 to 9.4% in 2006, is no Robin Hood plan that robs the rich to pay for the retirement of the working class. Rather, it is a mildly redistributive public retirement program financed by contributions from the wages of working people. In fact, Social Security taxes fall far more heavily on the poor and working class than on the well-to-do. Payroll taxes are a fixed 12.4% (actually 6.2% on employees and 6.2% on employers); they are levied only on wage income, not on property income; and the cap on wages subject to the tax (the subject of the debate between Clinton and Obama) means that while most workers pay the tax on every dollar of their income, the highest earners pay it only on a part.

Even FDR acknowledged that relying on payroll contributions to finance Social Security was regressive, although he famously argued that with those contributions in place, "no damn politician can ever scrap my Social Security program."