Obama calls for payroll tax on salaries above $250,000

COLUMBUS, Ohio — Democratic Sen. Barack Obama on Friday called for higher payroll taxes on wage-earners making more than $250,000 annually, a step that would affect the wealthiest 3 percent of Americans.

The presidential candidate told senior citizens in Ohio that it is unfair for middle-class earners to pay the Social Security tax "on every dime they make," while millionaires and billionaires pay it on only "a very small percentage of their income."

The 6.2 percent payroll tax is applied to all wages up to $102,000 a year, which covers the entire amount for most Americans. Under Obama's plan, the tax would not apply to wages between that amount and $250,000. But all annual salaries above the quarter-million-dollar amount would be taxed under his plan, Obama said.

Obama also said Republican presidential candidate John McCain has indicated he was willing to consider higher payroll taxes.

But Douglas Holz-Eakin, McCain's senior economic-policy adviser, said that as president, McCain would not consider an increase "under any imaginable circumstance."

Obama was vague about what forms of income would be affected. Campaign aides said the additional tax, like the current one, would apply only to wages and salaries and not to other forms of income, such as investments.

Obama has talked before of establishing such a "doughnut hole" in the amount of income subject to the Social Security tax. Friday marked the first time he confirmed a resumption point: $250,000 and above.

Obama made the remarks at a retirement facility in Columbus, capital of a state he lost to Sen. Hillary Rodham Clinton in the Democratic primary March 4. McCain is hoping to carry Ohio this fall, as President Bush did four years ago in his narrow win over Democrat John Kerry.

Obama said his plan "allows us to extend the life of Social Security" without raising the retirement age or cutting benefits.

The Illinois senator also criticized McCain for being open to letting taxpayers invest part of their Social Security payments in private investment accounts.

"Imagine if your security now was tied up with the Dow Jones," Obama said, alluding to the recent slide in stock prices. "You wouldn't feel very confident about the security of your nest egg."

McCain, campaigning Friday in New Jersey, said Obama was misrepresenting his position.

"I will not privatize Social Security," he said. "But I would like for younger workers, younger workers only, to have an opportunity to take a few of their tax dollars, a few of theirs, and maybe put it into an account with their name on it. That's their money."

The Arizona senator said later: "Private savings accounts have to be voluntary, they have to be only for young people, and they can't be the centerpiece of the argument."

Current retirees would not lose any benefits, McCain said.

The total Social Security tax rate of 12.4 percent is evenly divided between workers and employers.

Obama, speaking on other retirement issues, said he would "limit circumstances when retirement benefits can be cut," and increase the wages and benefits workers could protect in bankruptcy court. Companies would have to disclose more about their pension-fund investments, he said.

He vowed to end "the outrage of executives getting bonuses while workers watch pensions disappear."