On “Meet the Press” this weekend, Barack Obama struck out at Hillary Clinton over her refusal to commit to raising the cap on payroll taxes to help keep Social Security solvent. Obama’s focus on payroll taxes was refreshing after all the recent focus on the Alternative Minimum Tax (AMT). The AMT is the 1960s measure designed to catch a handful of super-rich tax cheats that now ensnares a lot of ordinary upper-class people and which Congress has pledged to fix.
Payroll taxes, which fund Social Security and Medicare, only apply to the first $94,200 of a worker’s wages. Income from investments and other passive earnings that make up a lot of the super-rich’s income aren’t subject to payroll taxes at all. That’s why Obama was suggesting raising the income cap, a reasonable idea given that the number of people in the upper tax bracket has soared under the Bush administration. John Edwards has also said he’d support such a measure. But Clinton is on the fence.
Which is too bad, because payroll taxes are highly regressive. More than half of wage-earning Americans pay more in payroll taxes than they do in income taxes, and they fall heaviest on people earning less than $40,000 a year, eating up more than 15 percent of a minimum-wage workers paycheck. The AMT, though, only hits people who make more than $100,000 a year. If Obama is serious about taking on payroll taxes, he ought to consider giving them a major overhaul, not just to fix Social Security, but to relieve some of the burden on the working poor.