How To Fix Social Security: What the 2016 Presidential Candidates Are Proposing

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FDR-signing-the-Social-Security-ActSocial Security is referred to as the “Third Rail” for politicians – touch it and your political career is over. Everyone knows something has to be done to fix Social Security. The Annual OASDI (Old-Age, Survivors, and Disability Insurance) Trustees Report has been warning us for years. Here are just a few conclusions from the 2015 report:

  • “The DI Trust Fund reserves become depleted in the fourth quarter of 2016.”
  • “The projected theoretical combined OASI and DI Trust Fund asset reserves… become depleted and unable to pay scheduled benefits in full on a timely basis in 2034.”
  • “The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them.”

The sooner our politicians take action to fix Social Security, the smaller the changes will be to make it solvent. There are basically four strategies to take in order to restore the system:

  1. Increase taxes
  2. Reduce benefits
  3. Increase the potential return of trust fund investments
  4. Convert Social Security from a “defined benefit” program to a “defined contribution” style similar to a 401(k)

Here is a look at how the presidential candidates (past & present) stand on Social Security:

Hillary Clinton (D)

Secretary Clinton opposes privatization of Social Security, opposes raising the retirement age and opposes reducing annual cost-of-living adjustments (COLA). She would oppose closing the long-term shortfall with moves that affect the middle class, whether through benefit reductions or tax increases.

She favors increasing benefits by raising benefits for survivors, and creating a caregiver credit. Because Social Security benefits are calculated based on a worker’s 35 highest-earning years, many people, especially women, who have been out of the workforce, or earned very little while caring for children or others for some years, have long received lower benefits because of that. The caregiver credit would give them a credit that would be added into their earnings for benefit-calculation purposes. She would increase revenue for Social Security by lifting the payroll tax cap and broadening the taxation base.

Ted Cruz (R)

Senator Cruz would raise the full retirement age and cap increases in the cost-of-living adjustment. He favors a general reduction of benefits by taking wage growth out of the calculation of initial benefits, leaving it influenced only by inflation, which is assumed to have a slower growth rate than wages. He also advocates allowing workers to save up to $25,000 per year in Universal Savings Accounts (USA).

John Kasich (R)

Governor Kasich supports reducing benefits for higher earners but has offered no specifics. He proposed establishing Personal Retirement Savings Accounts that would allow workers to direct 2% of their payroll taxes in much the same way Federal employees direct their retirement savings into a wide range of funds. He has advocated reducing the percentage of Social Security benefits that is taxable from 85 to 50 percent for single taxpayers with incomes over $25,000 and married couples with incomes over $32,000. In his 2006 book, “Stand for Something: The Battle for America’s Soul,” Governor Kasich wrote that more 18-year-olds believe they stand a better chance of seeing a UFO than a Social Security check.

Bernie Sanders (D)

Senator Sanders opposes any reductions to Social Security benefits, opposes increasing the retirement age and opposes privatization. He would strengthen Social Security funding by raising the system’s taxable wage base to $250,000 (it will be $118,500 in 2016). He has advocated raising benefits through a general increase for all recipients, a further jump in the minimum benefit, and a higher price index for cost-of-living adjustments.

Donald Trump (R)

Mr. Trump opposes cuts to Social Security and opposes raising the retirement age. He says it must be reformed and fraud must be rooted out to make Social Security more efficient which will ensure that the program is solvent. In July 2000, Mr. Trump proposed a one-time tax of 14.25% on taxpayers with a net worth over $10 million. $3 trillion of the tax revenue would be put into a trust fund to cover the Social Security short-fall into the next century.

The candidates’ proposals reflect a wide variety of approaches to fixing Social Security and every one of them would touch the Third Rail. None of the proposals are sufficient to fix Social Security’s long-term funding problems alone. Permanently fixing the problem will most likely require some combination of the four strategies. Hopefully our next president will take action on this important issue rather than kicking the can down the road to his or her successor when more drastic measures will be needed.

Jeb Bush (R)

Governor Bush proposes a list of benefit reduction tactics: raising the “full” retirement age to 68 or 70, raising the earliest age at which you can start receiving benefits (which is now 62), using a lower price index for cost-of-living adjustments, and reducing benefits for higher earners through some form of means testing.

He supports raising the minimum benefit and favors eliminating payroll taxes for older workers. He also proposes eliminating the Social Security earnings test, which reduces benefits by as much as 50% when retirees collecting benefits also work before their full retirement age. He would also encourage setting up starter 401(k) accounts that would allow workers and businesses to access a single retirement plan to reduce complexity.

Ben Carson (R)

Dr. Carson would like to increase the full retirement age gradually to give workers a chance to adjust their plans and expectations. He has also proposed letting workers invest some of their payroll taxes in a personal account. He believes that each individual is responsible for their own pension and that government programs like Social Security are only supplemental in nature. He has also advocated stopping Social Security trust funds from being used for any purpose other than Social Security.

Marco Rubio (R)

Senator Rubio favors raising the full retirement age to age 70 with a gradual climb beginning in 2018 for those younger than age 55. He also favors reducing the COLA adjustments and reducing benefits for higher earners. He opposes tax increases. The Senator has advocated something on the order of the earned income tax credit to refund some of the payroll taxes paid by low income workers.

Rick’s Tips:

  • The Social Security Trustees recommend that lawmakers address projected shortfalls quickly so workers will have time to adjust to them.
  • There are four ways to fix Social Security 1) increase taxes, 2) reduce benefits, 3) increase return on the trust, 4) convert to a 401(k) style program.
  • Any fix to Social Security will require touching the Third Rail which is a politically unpopular position.

 

 

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