Their approaches to Social Security taxes tell us a great deal about key differences between Obama and Clinton.
Obama proposed lifting the "earnings cap" on the regressive social security tax to make it somewhat less regressive. Currently, incomes over 97,000 per year are not subject to the tax at all. This means that if someone makes 5,000,000 per year they pay the exact same amount in Social Security taxes as someone making 97,000. It also means that someone making over 97,000 pays a lower % of their income in social security taxes than anyone making less than 97,000.
Obama understands the injustice of this. He agrees with many progressive economists that lifting the earnings cap is good policy. It is also good politics. Most people do not even know about the "earnings cap". Why not? Because the vast majority of people make less than 97,000 per year. Most of the people who do know about it are those making over 97,000 - if they notice that at some point in the year the tax is no longer being deducted. Since most people make less than 97,000 it is a potential winning issue for Democrats. To propose a full lifting of the earnings cap calls the Republicans’ bluff about "tax cuts for working families".
For years the right wing has talked about "cutting taxes on working families". That is hogwash. They have raised the social security tax, while cutting the income tax. People with lower incomes pay a much greater proportion of their taxes to the social security tax, NOT the income tax. There are no deductions or exemptions for the social security tax. It is deducted automatically from the first dollar earned at the same rate on every single dollar up to 97,000.
Clinton’s response to the Obama proposal is classic pandering and misdirection. Instead of recognizing the regressive nature of the social security tax, Clinton claimed this would be a "massive tax increase on the middle class." I am sorry. People making over 97,000 per person (not per family) are NOT middle class. The MEDIAN family income in this country is less than 60,000. And even if by some stretch of the imagination they are "upper middle class" why should they get a tax BREAK on social security that those making far less do not get? How is that fair or logical? (I have pointed this out before in comments - only to be told how expensive it is to live in certain cities and 97,000 does not go very far anymore - well that may be true but millions of people in those cities make less - far less - than 97,000. What about them? Shouldn’t they be our focus?)
So Clinton’s response was to provide a deceptive and misleading frame to the issue. Then she pandered about "raising taxes on the middle class". Most voters do not realize that this "increase" is only for those making over 97,000 per person (not per family) and that the result would be to have everyone pay the same percentage of wages into social security. By using the now meaningless buzzword "middle class" Clinton intended to mislead by giving people the impression that truly "middle income families" would get a tax increase. Clinton pandered further to her "base" by asking for a "gap" from 97,000 to 200,000. (Sadly, Edwards greatly disappointed me by making the same proposal.) Where does that number come from? Why should someone making 97,000-200,000 get a tax break that is not there for those making less? Why should there be a special protection for those making 97,000 - 200,000?
A better idea would be to eliminate the social security tax on the first 20,000 of income - which could be made up for by applying the tax to all incomes above 97,000. Obama is not there yet but his excellent proposal is a good first step in that direction. Clinton’s response is politics as usual, depressingly so. If Clinton were a leader she would have embraced Obama’s proposal and taken it one step further - to call for the elimination of the social security tax on the first 20,000 of income.