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 taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. , 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.
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Obama’s Plan to Abolish the Social Security Wage Ceiling |
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State |
Total Number of Workers (a) |
Scenario 1: |
Scenario 2: |
Scenario 3: |
||
|
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.
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