In a speech to senior citizens in Ohio yesterday, Obama unveiled his new position on Social Security. The Associated Press tries to make sense of it, with the assistance of Obama staffers, here.
Obama proposes an increase in Social Security taxes. Here is how he described it to his audience in Ohio:
Here’s where I would start. Right now, the Social Security payroll tax is capped. That means that most middle-class families pay the payroll tax on every dime that they earn. But, once you get to $102,000 per individual, then you’re no longer paying the payroll tax.
And what that means is, is that while you, most of the people here, paid Social Security on every dime you ever earned, you’ve got billionaires and millionaires who are paying only a tiny fraction — paying payroll tax on only a tiny fraction of their income.
I’ve got a friend in Omaha — you may have heard of him — named Warren Buffett. He’s worth $56 billion. You know, if he’s only paying the first $100,000, that is .000001 percent of his income is he paying Social Security. I may have lost a couple of zeroes in there.
The point is, it’s negligible to him. It’s not even noticeable. Now, I think that’s why the best way forward is to first look to adjust the cap on the payroll tax so that people like me — because I’m earning more than $102,000 — pay a little bit more and people in need are protected.
There is a reason, of course, why the income on which we pay Social Security taxes has always been capped. The Social Security program was intended as a safety net, not as a wealth redistribution program. Since the amount of benefits one can receive is capped, it has always been considered fair to cap the income on which the tax is paid as well.
Obama, of course, is not a courageous enough politician to follow his own logic if it will cost him votes. So, weirdly, he goes on to create an exemption from his own tax increase:
And, by the way, I think that we should exempt anyone making under $250,000 from this increase, so it will not burden the middle class. Anybody under $250,000 would not be affected whatsoever; 97 percent of Americans will see absolutely no change in their taxes under my proposal, 97 percent.
This makes no sense. If it is unfair for someone making $100,000 to pay Social Security taxes on all of his income while “billionaires” likewise pay only on their first $100,000 of income, then why isn’t it unfair for the $100,000 guy to pay taxes on his whole income, while the $200,000 earner pays Social Security taxes only on the first half?
The answer, of course, lies in politics rather than logic. There are relatively few voters who earn more than $250,000, while there are a great many earning between $102,000 and $250,000. In fact, this income demographic corresponds with remarkable precision to Obama’s core supporters, the only Americans to be singled out for a tax preference under Obama’s plan. A “new kind of politics,” indeed.
The incoherence of Obama’s approach to Social Security doesn’t stop there. He rails ritually against private accounts:
Now, my opponent in this general election, John McCain, his idea on Social Security amounts to four more years of what was attempted and failed under George Bush. He said that he supports private accounts for Social Security, in his words, along the lines that President Bush proposed.
But let me be clear: Privatizing Social Security was a bad idea when George Bush proposed it; it’s a bad idea today.
When Obama goes on to outline his own plan, however, it turns out that the centerpiece (along with a tax increase) is nothing other than private accounts:
Finally, we’re not going to help people reach a secure retirement unless we encourage savings. But today, personal savings is at an all-time low, as the average American has seen their wages or incomes flat-line or even decline, at the same time as costs for everything are going up.
And that’s why I’ve proposed an automatic workplace pension. There’s going to be no red tape or complicated forms. Employers will provide a direct deposit of a small percentage of each paycheck into your account. You can add to it, or you can opt out of it at any time. And so it’s going to be optional.
And employers will have an easy opportunity to match employee savings. If you switch jobs, your savings will roll over into your new employer system. If you become self-employed, you’ll be able to control your account.
And we’ll also help middle-class families start their own nest egg by matching 50 percent of the first $1,000 saved, a match that will be directly deposited into your savings account, a tax cut that will truly encourage savings….
Are private accounts a good idea? Of course they are. Obama is planning for his own retirement through his 401(k) plan and related private accounts, not Social Security, as is probably every single person with whom Obama is acquainted. But it is incoherent and dishonest, even by Obama’s standards, to denounce private accounts in one breath and propose them in the next.
UPDATE: Reader Jim Ogden points out that Obama’s arithmetic and his knowledge of close personal friend Warren Buffett’s finances are deficient:
First of all, Warren may be worth $56 billion, but he doesn’t earn that much. But let’s assume that he did. 102,000 divided by 56,000,000,000 is .0000018 which is .00018%, not .000001%. So the real figure would be 18,000% higher.
But more importantly, according to Wikipedia, Warren’s salary (from 2006) is actually about $100,000. I know this to be true because I have heard him bemoan the fact that his secretary pays more income tax than him (since most of his income is from dividends). The last time I checked, we don’t pat social security tax on non-earned income. So Obama is dead wrong to suggest that his plan would cause Warren to pay more.
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