This post concludes my three-part Financial Facts About Barack Obama series.  On Wednesday, I looked at the effect of Obama’s proposal to let the Bush tax cuts expire, and yesterday I focused on the effect of his proposal to raise the long-term capital gains tax. 

Today, I want to write about Obama’s proposal to raise Social Security taxes.

The Social Security Tax Hike

As it is, the Social Security tax amounts to a 12.4 % tax on earnings up to $102,000.  Obama hasn’t been clear on what he wants to do: 

  • Originally (with regard to letting the Bush tax cuts expire), he said he would not increase taxes for people earning less than $250,000. 
  • He contradicted himself by saying later that he would tax all income to fund Social Security, including income over the $102,000 cap.  
  • To reconcile his contradictory statements, Obama said he would not subject income between $102,000 and $250,000 to the Social Security tax, but he would, instead, subject all income above $250,000 to the Social Security tax.

Facts About Barack Obama image 1Let’s give Obama the benefit of the doubt and assume that, after being inaugurated, he will advocate taxing income above $250,000 to fund Social Security.  That’s an additional 12.4 % tax on individuals’ incomes that exceed $250,000.

Effect of the Social Security Tax Increase

This increase will have several detrimental effects, including (1) slapping a huge tax increase on today’s young voters; (2) further removing incentives from striving for professional success; (3) reducing the value of a college degree; and (4) the march towards a socialist revolution.

1) A HUGE increase in Social Security taxes for young people.

According to certain studies, Obama’s policy would impose a 60 % increase in lifetime Social Security payroll taxes for some young voters.  And if you’re college-educated, prepare to lose more because the future earnings of college-educated workers are likely to remain above Social Security’s maximum taxable limit for most of their careers. 

Under the current system, college graduates will contribute about 5 % of their lifetime earnings to Social Security.  Under President Obama, they would contribute almost 9 %. 

This is mind-boggling.  A majority of Obama’s supporters are young college students.  Yet, by voting for Obama, a college graduate earning $40,000 per year today is effectively surrendering an additional 4 % of his or her lifetime earnings to Social Security.  (And considering that Social Security may be bankrupt anyway by the time that college graduate reaches retirement age, he or she may get no benefits in return.)

2) Less incentives to strive for professional success.

For those with college and post-graduate degrees (me included) who have professional jobs, a higher tax rate that accompanies salary and compensation increases past $250,000 makes it less attractive to strive for that promotion or executive position. 

It’s enough that compensation above $250,000 is taxed at 30+ %.  What’s more, the top rate will likely be 39 % under Obama.  His proposal will add an additional 12.4 % tax for income above $250,000.  Thus, high-salaried executives and professionals will be surrendering about 50 % of the top portion of their compensation. 

For example, a partner at a big law firm probably makes about $1 million per year.  I know that’s a lot of money.  But let’s look at a snippet of how much this person will have to fork over to Uncle Sam under President Obama.  In addition to the taxes he pays for the lower brackets of his income (i.e., $0 – $350,000), this person will have to pay over 51.4 % in taxes (39 % after Bush tax cuts expire and additional 12.4 % for Social Security) for all income above $357,700.  $1 million – $357,700 = $642,300.  51.4 % of $642,300 is $330,142.20.Facts About Barack Obama image 2 

This law firm partner will have to pay $330,142.20 in taxes for his income above $357,700.  And that’s just for income above that $357,700 tax bracket.  Add on the rest of the taxes he pays for the lower brackets of his income, including Social Security taxes on income up to $102,000 and from $250,000 to $357,700, and he’ll likely surrender about HALF of his total income to the government.

This is insane.  Looking at it from the bottom, I would HATE to fork over that much of my money.  Moreover, it’s not like these highly compensated professionals work 9 to 5.  They work around the clock.  (I know I do!)  Working that hard (i.e., late nights, weekends, etc.) and then having to pay Uncle Sam almost HALF of what you make? 

It’s not worth it.  I’d rather work less and make less because I won’t have to surrender to the government so much of the money I’ve earned for working long hours.  I know a lot of other professionals would feel the same way.      

3) A reduction of the value of a college degree.   

What does this all mean?  Two things.  First, Obama’s plans for Social Security effectively reduce the value of college and post-graduate degrees.  Higher Social Security taxes decrease the incentives of young voters to stay in school and/or pursue post-graduate degrees.  

Ordinarily, additional years of education guaranteed a higher income.  But if that additional income is taxed at a higher rate, the increased tax burden wipes away the value of paying for the additional education in the first place.

Facts About Barack Obama image 34) Socialist Revolution.

If people don’t have a monetary incentive to educate themselves, find well-paying jobs, and excel in those jobs, production will grind to a halt, the middle class will disappear, and the economy will tank.  We might as well become a socialist country because that’s what this is going to look if Obama’s tax proposals come to fruition.

There’s nothing new here with Obama.  There’s no hope or change.  It’s just more (and worse) of the same.

If you’re an entrepreneur or interested in business and money in general, a vote for Obama isn’t the way to go.  These facts about Barack Obama illustrate that, under his tax proposals, we’d be in for one heck of an economic and social disaster.

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