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Election 2016: Funding and Eligibility for Social Security

election_2016_social_security.pngEstimated reading time: 5 minutes and 45 seconds

Social Security is the primary safety net which contributes 41% of the average retirees income.  The other 58% comes from retirement plans, and other savings.   Studies show that less people are eligible for benefits, and will be using them as earnings beyond age 67 for their future years. Although it is estimated that the self funding program of social security will have a lack of funding by 2032, the previous practice, of over 80 years, indicates that changing the funding percentages and borrowing could stabilize the funds beyond 2032. Just to give you an idea, Trump wants to specifically sequester the funds.  Sanders proposes a major tax  overhaul to fund future contributions and thus payouts.  Clinton’s proposal tends to “kick the can down the road”. Let's take a look at where the presidental canditates stand on this issue:

Clinton

Clinton wants to “expand Social Security for those who need it most and who are treated unfairly by the current system — including women who are widows and those who took significant time out of the paid workforce to take care of their children, aging parents, or ailing family members.” Of note, Clinton is the only candidate who wants to improve benefits for caregivers, according to AARP. “She supports targeted benefit expansions, including a caregiver credit so that people (mostly women) who take time out of the workforce to care for loved ones aren’t penalized when calculating their Social Security benefits,” according to SocialSecurityWorks.org.

And like Sanders, Clinton wants to “preserve Social Security for decades to come by asking the wealthiest to contribute more.” Options include: taxing some of their income above the current Social Security cap and taxing some of their income not currently taken into account by the Social Security system.

Clinton intends to expand Social Security in targeted ways, such as a caregiver credit that prevents penalizing those who are out of the workforce due to caring for others. She opposes raising the full retirement age, privatization of Social Security, and any reduction in benefits or cost-of-living adjustments (COLAs). The plan is paid for by increased contributions from the wealthy, through taxing some income above the current Social Security cap of $118,000 in taxable earnings.

 

Sanders

Sanders wants to increase Social Security benefits by about $65 a month for most recipients. Plus, he wants to boost the minimum benefit to $14,363 a year for someone who has worked for 30 years and he wants to use the consumer-price index for elderly (or CPI-E) to calculate cost-of-living adjustment (or COLA) instead of the Consumer Price Index for Urban Wage Earners and Clerical Workers (or CPI-W).

By doing this, an average senior at the age of 80 will see a $43 a month increase, while the average senior at age 90 will see a $73 a month increase in benefits, according to Sanders’ proposed legislation.

Sanders would fund improved benefits for low-income seniors and improved benefits for all seniors by including earnings over $250,000 a year in the payroll tax (currently those making over $118,000 do not pay in on their income about that amount). Sanders would also apply a 6.2% Social Security tax on investment income for high-income households.

He notes that Social Security's current surplus is invested in U.S. Treasury bonds, which he calls the "safest interest-bearing securities in the world." 

Sanders's proposals would increase federal taxes by $15.3 trillion over the next decade, according to the Tax Policy Center. Sanders concentrates his tax increases on high-income households, which would face sharply higher levies on their wages, business income, capital gains and estates, as well as more limits on their deductions. The top 0.1%--those with incomes of $3.7 million under an expanded definition--would pay an average federal tax rate of 63.7% in 2017, up from 34.2%.

The middle 20% of households would face an average tax increase of $4,692 in 2017 and lose 8.5% of after-tax income.  This would not enhance savings for retirement by this cohort, but presumably Sanders longer term plans to increase Social Security to be potentially a successor to retirement or pension plans, would take up this challenge. The lowest-income households would lose, too, but they would come out even by 2025, again with less savings and investment in retirement plans.

Trump

Trump would close the gap by attacking the "tremendous waste, fraud, and abuse" within the program. The Committee for a Responsible Federal Budget (CRFB) estimates that eliminating all waste and fraud would save approximately 0.6% in costs, only extending Social Security's solvency by four months. Trump seems to expect economic growth under his administration to take care of the rest of the gap. Donald Trump argues against any cut in benefits or increase in taxes, instead relying on faster economic growth to close the Social Security funding gap.

I would never support what has to be the craziest ideas in the history of U.S. politics: allowing the government to invest Social Security retirement funds in the stock market.

Trump’s position on social Security includes allowing individuals to directly invest part of their Social Security assets, including investments in their own businesses.  This is  consistent with the Republican party platform.

In Summary

As for permitting investments in real estate, direct investment in real estate in IRAs and qualified plans (read 401(k)s) has been in existence since 1975.  In addition, 401(k)s have been used to fund business start ups of their 401(k)s for decades.

I would impose a one-time, 14.25% tax on individuals and trusts with a net worth over $10 million. That would raise $5.7 trillion in new revenue, which we would use to pay off the entire national debt. We would save $200 billion in interest payments, which would allow us to cut taxes on middle-class working families by $100 billion a year or $1 trillion over ten years. We could use the rest of the savings--$100 billion-to bolster the Social Security Trust Fund. By 2030, we [will have] put $3 trillion into the trust Fund, which would make it solvent into the next century.

[In addition to shoring up Social Security for the long term], I say it’s high time to separate Social Security from the general treasury. It is time to lock-box it and throw away the key.

The candidates, Trump, Clinton, and Sanders have not ignored the issues of social security funds and benefits, or private retirement plans legislated into existence in 1975.  All three candidates recognize that people have not saved sufficiently to retire. 

None want to explore age of retirement changes from age 65, 66 or 67, to ages more oriented to demographics of our times.  None make any statement about mandatory retirement ages either, and it seems that the age issue is tied more directly on when people receive social security benefits. All know that benefits need to be there for the lower and middle income classes, and all, in some form, favor having less or no payouts from social security to highest income earners.

Other articles in this series:

 

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