Obama proposes increasing Social Security tax on wealthy

WASHINGTON - Senator Barack Obama yesterday proposed raising Social Security taxes on the wealthier, saying the nation's "most regressive tax" needed to be revamped to increase revenues to the retirement fund and spread the burden of paying for the program more evenly.

"This is an issue that we've been punting, and it's going to make it harder to solve it in the long term," Obama said in an interview with the Globe before peddling the idea before a group of senior citizens in Iowa.

Obama reiterated that he would not raise the retirement age or cut benefits for what he called "the most successful social insurance program we have." But he said he would consider raising the cap on the Social Security tax - currently imposed on earnings up to $97,500 - or creating a so-called doughnut hole that would reinstate the tax once income hits a certain level, as Democratic presidential hopeful John Edwards has proposed.

Edwards, a former senator from North Carolina, has suggested reimposing the Social Security tax on earnings above $200,000 so that upper-middle income earners - those making $97,500 to $200,000 a year - would not suffer an additional tax burden.

Obama also took a shot at his rival for the Democratic presidential nomination, Hillary Clinton, suggesting that the New York senator had failed to address how she would fix Social Security, which specialists believe will begin running a deficit in 2017. Clinton has said she will not privatize Social Security, but in Democratic debates has declined to say whether she would raise the cap on the amount of income subject to the Social Security tax.

"In the past debate, the consensus was that she avoided providing any sense of direction in terms of how we're going to go on this. We need to tell people what they need to hear, not what they want to hear," Obama said. At the Iowa event, Obama accused Clinton of "ducking" the issue.

"On issues as fundamental as how to protect Social Security, a candidate for president owes it to the American people to tell us where they stand. Because you're not ready to lead if you can't tell us where you're going," Obama said at the East Side Senior Center in Des Moines.

Clinton campaign spokesman Phil Singer said the New York senator has been "clear" on opposing privatization of Social Security, and would look for a "bipartisan" approach to the program as president.

"It's unfortunate that Senator Obama has abandoned the politics of hope as his campaign has stalled. Maybe he should focus on explaining why a few months ago he said everything was on the table, including raising the retirement age, but today says he opposes it," Singer said.

Clinton, asked directly at a New Hampshire debate in September whether she would raise or expand the Social Security tax, refused to give a specific response, saying she did not want to negotiate on the matter before she was president. She also said she would "not put anything on the proverbial table until we move toward fiscal responsibility."

Currently, the Social Security tax is levied at the same rate on all taxpayers, regardless of income. Since the tax is only imposed on earnings up to $97,500, lower-income taxpayers end up paying a higher rate of their salaries toward Social Security.

For many lower-income earners, payroll taxes represent the biggest tax burden, since programs such as the Earned Income Tax Credit and others only lower income taxes, not Social Security and other payroll taxes.

At a campaign event in Iowa earlier this month, Clinton was overheard by an Associated Press reporter telling voter Tod Bowman that she would also consider a gap in taxation, such as the one proposed by Edwards. Bowman - who introduced Obama at the Illinois senator's event yesterday - said at the time that he did not think it was fair to spare workers making $97,500 to $200,000 from higher Social Security taxes. Clinton has not publicly recommended creating such a gap in taxation.

Social Security is often called the "third rail of American politics," since it is a very sensitive topic for both retirees and those nearing retirement. Virtually everyone running for president in this and previous elections has acknowledged that Social Security faces a funding shortfall as the baby boomers retire. But candidates also know they will face a political backlash if they suggest fundamental changes in the programs, such as cutting benefits or raising the retirement age.

Bill Clinton, then Arkansas governor, derailed the campaign of former Massachusetts senator Paul Tsongas in 1992 by accusing Tsongas of having plans to cut Social Security benefits. In fact, Tsongas had suggested lowering the rate of the cost-of-living increase for Social Security benefits for wealthier seniors, but the perception that Tsongas might fiddle with Social Security benefits damaged him in Florida, a critical primary state in 1992.