Download Fiscal Fact No. 128 Fiscal Fact No. 128 It is commonly observed that the policy ideas of Barack Obama and Hillary Clinton are almost identical, but Obama does have one major tax proposal that Clinton does not specifically endorse: eliminating the wage ceiling for Social Security taxes. Whether the wage ceiling is justified in sound policy depends on one’s view of Social Security, but there has always been a ceiling on the tax, an amount of annual wages above which the tax does not apply. Right now, the wage ceiling is quite high, $102,000 for a single person, so almost all American workers pay on every dollar of wages. In 2008, the maximum Social Security tax for a single person is 12.4 percent of the first $102,000 in wages, or $12,648. Reporters have asked Obama how he can propose to abolish the wage ceiling and also keep his promise not to raise taxes on anyone who makes less than $200,000 or $250,000 (Obama has cited both figures). His response is that he might campaign for a “donut hole” in the Social Security tax. That is, wages up to the ceiling would be taxed as usual, followed by a non-taxable amount up to $200,000 or $250,000, and then all wages above that would be taxed. In the table below we give a state-by-state breakdown of those three scenarios: (1) wage ceiling is eliminated, (2) wage ceiling eliminated but with a donut hole up to $200,000, and (3) wage ceiling eliminated but with a donut hole up to $250,000. Note that the figures cited in the table are static estimates, meaning that they do not account for possible behavioral (or tax planning) changes that would occur from a change in payroll tax policy. Obama’s Plan to Abolish the Social Security Wage Ceiling What Is the State-by-State Impact? State Total Number of Workers (a) Scenario 1: No Wage Ceiling and No Donut Hole Scenario 2: No Wage Ceiling but Donut Hole Up to $200K Scenario 3: No Wage Ceiling but Donut Hole Up to $250K Number of Workers Who Would Pay More Percentage Who Would Pay More State Rank of Percentage Number of Workers Who Would Pay More Number of Workers Who Would Pay More U.S. Total 162,186,672 10,144,275 6.25% 2,425,540 1,682,698 AL 2,322,809 99,738 4.29% 29 26,295 25,329 AK 404,984 20,261 5.00% 24 3,665 3,566 AZ 3,166,556 187,877 5.93% 15 (b) (b) AR 1,448,396 53,767 3.71% 39 (b) (b) CA 19,120,039 1,672,082 8.75% 6 358,389 234,927 CO 2,796,399 194,594 6.96% 9 41,464 28,228 CT 2,007,218 190,811 9.51% 3 57,511 39,647 DE 467,059 29,216 6.26% 12 4,960 4,512 FL 9,460,825 525,993 5.56% 17 142,924 102,543 GA 5,041,059 296,301 5.88% 16 69,633 50,240 HI 708,130 37,574 5.31% 22 7,866 7,341 ID 817,006 28,121 3.44% 45 (b) (b) IL 6,995,750 490,789 7.02% 8 111,649 73,441 IN 3,495,263 132,008 3.78% 37 35,596 34,969 IA 1,765,035 62,333 3.53% 43 20,318 14,083 KS 1,604,064 67,415 4.20% 31 18,530 16,061 KY 2,196,350 79,032 3.60% 42 (b) (b) LA 2,193,819 89,084 4.06% 33 24,315 23,673 ME 768,134 28,487 3.71% 40 (b) (b) MD 3,257,574 311,500 9.56% 2 49,815 33,430 MA 3,694,810 327,903 8.87% 5 70,139 43,931 MI 5,350,850 296,957 5.55% 18 59,768 44,828 MN 3,098,565 186,119 6.01% 13 45,547 31,818 MS 1,403,322 51,637 3.68% 41 (b) (b) MO 3,216,711 137,749 4.28% 30 36,417 33,741 MT 542,932 13,098 2.41% 50 (b) (b) NE 1,047,786 35,722 3.41% 46 7,511 7,240 NV 1,388,513 75,270 5.42% 19 (b) (b) NH 797,663 54,444 6.83% 10 10,163 7,967 NJ 4,793,745 514,130 10.73% 1 117,648 71,875 NM 1,013,867 42,335 4.18% 32 7,794 7,539 NY 10,213,098 820,558 8.03% 7 218,827 149,728 NC 4,841,647 230,403 4.76% 25 57,693 40,547 ND 390,769 10,329 2.64% 49 3,382 2,227 OH 6,268,389 281,577 4.49% 27 67,865 62,316 OK 1,889,158 71,330 3.78% 38 23,483 22,918 OR 2,059,989 105,948 5.14% 23 24,816 16,384 PA 6,743,379 358,575 5.32% 21 88,085 78,996 RI 606,424 32,552 5.37% 20 7,672 7,414 SC 2,295,044 89,433 3.90% 36 24,189 23,463 SD 459,453 13,257 2.89% 48 5,090 4,938 TN 3,205,481 144,276 4.50% 26 38,384 25,949 TX 12,303,111 731,566 5.95% 14 178,995 130,858 UT 1,378,557 61,171 4.44% 28 11,163 10,587 VT 386,208 15,502 4.01% 34 2,618 2,466 VA 4,413,398 392,235 8.89% 4 69,904 44,606 WA 3,570,306 234,924 6.58% 11 45,520 40,983 WV 887,373 30,010 3.38% 47 (b) (b) WI 3,240,060 129,762 4.00% 35 34,865 33,250 WY 308,793 10,653 3.45% 44 (b) (b) DC 340,802 47,867 14.05% – 11,117 7,338 (a) Workers are defined as those having at least $1 in wages or self-employment income. (b) Census “top-codes” high-income tax returns for privacy reasons, preventing an accurate estimate of the donut hole’s impact in these states. Source: 2006 American Community Survey Public Use Microdata Set. The states that rank the highest are those where the most people would have to pay more, even if the additional tax were small. As a result, while the ranking generally mirrors average state income, Virginia and Maryland rank higher than states with higher average incomes. That’s because the federal government pays tens of thousands of workers in the Washington, DC, area more than $102,000 annually.
