Monday, November 24th, 2014

The Obameter

Lift the payroll tax cap on earnings above $250,000


"Barack Obama believes that the first place to look to strengthen Social Security is the payroll tax system. Obama believes that one strong option is increasing the maximum amount of earnings covered by Social Security by lifting the payroll tax cap on only earnings above $250,000."


Updates

Payroll tax cap unchanged

President Obama promised to strengthen Social Security for the future by making the wealthy pay more.

Under current law, people pay Social Security taxes up to $106,800 in income. On every additional dollar, there's no Social Security tax. Obama's promise to "strengthen" the retirement program by charging the tax for earnings above $250,000.

There's no sign of progress. We checked with with St. Petersburg, Fla., CPA and tax attorney G. Barry Wilkinson, who said it hasn't happened. And legislation to make the change appears to have fizzled.

Sen. Bernie Sanders, I-Vt., introduced a bill in September 2011 called the Keeping Our Social Security Promises Act that would achieve Obama's goal. In a press release, Sanders said the change would fully fund Social Security for another 75 years.

The bill was referred to the Senate Finance Committee and has not moved.

Obama still mentions the promise in his speeches. At a town hall meeting in Annandale, Va., in April 2011, Obama said, "If we just made a little bit of an adjustment in terms of the cap on Social Security, that would do a significant amount to stabilize the system.”

That's talk, but no action. We rate this a Promise Broken.

Sources:

FY2013 Budget of the U.S. Government, White House Office Of Management And Budget

Interview with G. Barry Wilkinson, April 25, 2012
   
Email interview with Kara Carscaden, Obama campaign, April 25, 2012

Website of Sen. Bernie Sanders, I-Vt., "Sanders Proposes Bill to Strengthen Social Security,” Aug. 25, 2011

THOMAS bill tracker, Keeping Our Social Security Promises Act, Sept. 14, 2011

WhiteHouse.gov, "Remarks by the President at a Town Hall in Annandale, Virginia,” April 19, 2011

No active plans to lift payroll tax cap for Social Security

Barack Obama promised during the campaign to shore up Social Security by lifting the payroll tax cap on people with earnings above $250,000.

A quick primer on Social Security: Social Security is a program, started in 1935, that sends cash payments to seniors based on the taxes they paid toward Social Security when they were working. The current tax rate for Social Security is 6.2 percent on the first $106,800 of wages. (Fine print: Employers pay an additional 6.2 percent, and the self-employed have to pay 12.4 percent. The $106,800 is indexed to inflation, so it typically increases every year.)

Obama's proposal would be to tax wages above $250,000. Yes, this does create a weird doughnut hole on earnings between $106,800 and $250,000, but Obama wanted to keep his pledge not to raise taxes on families who make less than $250,000 . PolitiFact has currently rated that promise Compromise.

We have been unable to find any proposals thus far in which the Obama administration proposes lifting this cap, and that includes its Treasury Department's "General Explanations of the Administration's Fiscal Year 2010 Proposals."

This issue may sound familiar because the Senate is currently considering increasing payroll taxes for people whose income exceeds $250,000 for Medicare's Hospital Insurance. The current rate is 1.45 percent; the Senate measure would raise it to 2.35 percent on people with higher incomes. But this is a different issue from Social Security taxes.

Confused? Look on your own pay stub if you get one. The line that represents Social Security taxes is usually labeled FICA OASDI, which stands for Federal Insurance Contributions Act Old-Age, Survivors, and Disability Insurance. The Medicare portion is usually labeled Medicare HI, for Hospital Insurance.

Still, we've seen no measurable progress or concrete proposal yet to lift the cap on Social Security payroll taxes. So we rate it Stalled.

Sources:

U.S. Treasury Department, " General Explanations of the Administration's Fiscal Year 2010 Proposals ," May 2009

Interview with Bob Williams of the Tax Policy Center

U.S. Senate, Manager's Amendment: HR 3590 , Dec. 19, 2009