One interesting note about campaign promises that stuck with me this week is the idea of eliminating the income cap on SS taxes (Schedule SE for farmers) such that the wealthy pay SS on all their income, just like they do for Medicare. It's a legitimate idea, and has been put forward as one possible part of a solution to Social Security by several voices. During a campaign, those voices get listened to more closely, however.
Clinton called Obama's proposal to raise Social Security taxes on earnings over $97,500 per year, the current upper limit on which any tax is levied, a trillion-dollar increase on "middle class families."But since Barack Obama suggested it, some attorneys in New York have realized its true impact.
Clinton: I do not want to fix the problems of Social Security on the backs of middle class families and seniors. (Applause.) If you lift the cap completely, that is a $1 trillion tax increase. I don't think we need to do that.
ClintonTaxing all earnings would indeed amount to a $1.3 trillion increase over the next 10 years alone, according to estimates by Cato Institute Social Security expert Michael Tanner, who says he drew his figures from projections by the Social Security Administration staff. A similar estimate comes from Citizens for Tax Justice, which figures the measure would bring in $124 billion per year.
Obama defended his proposal by saying it would fall only on the "upper class."
Obama: I've heard you say this is a trillion dollar tax cut on the middle class by adjusting the cap. Understand that only 6 percent of Americans make more than $97,000 — (cheers, applause) — so 6 percent is not the middle class — it's the upper class.
Clinton responded by saying that some of her New York constituents would still find the increase burdensome. "I represent firefighters. I represent school supervisors," she said. [More]
But how will Obama affect BigLaw wallets? On Above the Law, we regularly see commenters threaten to abandon law firms for falling $5,000/year short of market. I therefore thought it worthwhile to examine the effects of Obama’s tax and spending plans on take-home pay.This analysis is fundamentally sound, I think, and will have ramifications for farmers as well. But what has gone unnoticed by most making salaries that would see this increase is how few other Americans have been able to join their ranks and thus constitute a credible voting bloc.
We all know that Obama wants to end the Bush tax cuts. That is a 3% bump across the board to the bad old days when associates faced a marginal federal tax rate of 36%.
But the real hidden tax is that Obama plans to end the social-security tax cap. Right now, you may notice, sometime during the summer or early fall, your take-home pay suddenly goes up because they stop deducting FICA. Current law caps social security taxes: in 2008, the cap is at $102,000. Obama proposes to abolish this. That mid-summer bump will be no more: add about several thousand dollars to your annual tax bill.
But social-security taxes are not only on employees. The government also charges 6.2% to employers that you never see on your W-2s. But rest assured the partners see this, and will notice that the expense of keeping an associate has risen several thousand dollars a year when FICA taxes double and triple. Will they swallow that additional expense, or take it out of your bonus? [More legal hysteria - read a few comments]
Oh sure, they could buy influence and will with campaign contributions, soft money, etc. but the lopsided national income distribution we now have to cope with means most will weep crocodile tears for these poor legal beagles struggling with their $280,000 incomes.
But back to farmers. If payment limitations become a real possibility, and spouses get enlisted to haul in some subsidies, there could be a serious trade-off in SS taxes paid and subsidies actually received.
Now what if payments are cut to fund other farm bill priorities? The trade-off becomes trickier if a spouse has either a significant non-farm income or is assigned a significant portion of farm income.
Prosperity on the farm is tough to reconcile with a tax system that redistributes downstream.