Obama’s Plan to Abolish the Social Security Wage Ceiling: A State-by-State Breakdown

May 30, 2008

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.


Topics


Tags


About the Author


Related Research