How the Presidential Candidates Plan to Save Social Security

Whether or not you think Social Security needs "saving" or not, I think we could all agree that it at least needs a few fixes. Money magazine has a series on what the leading presidential candidates say they'll do to fix Social Security. Here are the highlights:

Clinton

• Private accounts? No
• Hiking the wage cap? No
• Stand on reforming the system: Favors bipartisan panel to explore reform, plus add-on 401(k)-like accounts (not funded via payroll tax).
• Proposal to pay for the funding gap: No specifics beyond saying what she won't do: cut benefits or raise the retirement age.

Obama

• Private accounts? No
• Hiking the wage cap? Yes
• Stand on reforming the system: Favors keeping benefit levels and retirement age as they are now.
• Proposal to pay for the funding gap: Would impose Social Security payroll taxes on income over $200,000 a year.

Edwards

• Private accounts? No
• Hiking the wage cap? Yes
• Stand on reforming the system: Would create a bipartisan commission to recommend reforms.
• Proposal to pay for the funding gap: Would impose Social Security payroll taxes on income over $200,000 a year.

Richardson

• Private accounts? No
• Hiking the wage cap? No
• Stand on reforming the system: Thinks system doesn't need major reform; greater economic growth will resolve the problem.
• Proposal to pay for the funding gap: Hasn't proposed a specific plan beyond ideas to spur growth; opposes any hike in payroll taxes.

Giuliani

• Private accounts? Maybe
• Hiking the wage cap? No
• Stand on reforming the system: Says private accounts are a possibility for younger workers; would appoint bipartisan panel.
• Proposal to pay for the funding gap: Hasn't come out with a position.

McCain

• Private accounts? Maybe
• Hiking the wage cap: ???
• Stand on reforming the system: Advocates personal accounts but hasn't said if they'd be funded from payroll tax; would appoint bipartisan panel.
• Proposal to pay for the funding gap: Hasn't come out with a position.

Thompson

• Private accounts? No
• Hiking the wage cap? No
• Stand on reforming the system: Plan includes voluntary add-on accounts (not funded via payroll tax) with federal dollar match.
• Proposal to pay for the funding gap: Would index benefits to inflation (not wage growth), which could reduce benefits 5 percent to 10 percent.

Romney

• Private accounts? Maybe
• Hiking the wage cap? No
• Stand on reforming the system: Would consider private accounts (favors putting any surplus in them); no changes for those 50-plus.
• Proposal to pay for the funding gap: Favors indexing benefits to inflation; might lower benefits for those in the highest income brackets.

Huckabee

• Private accounts? Yes
• Hiking the wage cap? N.A.
• Stand on reforming the system: Supports Bush plan for private accounts; would give retirees option of a buyout or an annuity.
• Proposal to pay for the funding gap: Would replace Social Security payroll tax with his "FairTax," which is based on wealth.

Here's my position on each of the four factors:

• Private accounts? Maybe. I'd need to know the details first. I like the idea of controlling my own destiny, but I'm sure the government will come up with an option so unusable it would be much different that what I'd hope for.

• Hiking the wage cap? No

• Stand on reforming the system: I like the bipartisan panel idea. That's about the only way to get anything done -- to get both sides in on it from the get-go.

• Proposal to pay for the funding gap: I'd start to raise the retirement benefits age. Let's face it -- people are living a LOT longer than they did when this system started, and that's why it's in trouble. Let's go back to the original purpose of the system, which means we'd need to raise the age at which people could get Social Security.

A few other comments/things I noticed in the info above:

1. I'll be glad when we get through Iowa/New Hampshire and the presidential field gets weeded out a bit. I'm getting tired of listing all these candidates. ;-)

2. Clinton says she won't "cut benefits or raise the retirement age." As you can see, I'm not on the same page with her on this one.

3. Obama and Edwards want to impose Social Security payroll taxes on income over $200,000 a year. Nope, I'm not with them either.

4. Richardson seems to be the only one that thinks all is well.

5. Some ideas that interest me (not sure if they'd work or not, but I'd like to hear more about them):

• Thompson's/Romney's plans to index benefits to inflation (not wage growth).
• Huckabee's fair tax idea (though, again, I think this is dead-in-the-water politically.)

Comments

[Becky]

I agree with you completely about raising the retirement age. Here's an interesting link from the SSA about life expectancy:
http://www.ssa.gov/history/lifeexpect.html
Very interesting is that in 1940 the retirement age for SS was 65 and life expectancy was 54 for men. In 1990 the life expectancy for men was 72 and retirement age still 65!

[Anitra]

Raising the retirement age is great in theory, but doesn't allow for people whose jobs don't allow them to work after a certain age, and don't necessarily give large retirement packages. My mom went from being an off-and-on teacher to working in retail, and it's only the alimony from my dad that kept her head above water until she could draw Social Security.

If they can take care of that problem, I don't mind if they gradually up the minimum age for Social Security benefits.

Private accounts are also a great idea in theory, but I don't see how they can be funded while we still have a large group drawing off of the current program.

[Anon]

by Ron Paul March 5, 2007

March 5, 2007

David Walker, Comptroller General at the Government Accountability Office, appeared on the show “60 Minutes” last evening to discuss the federal budget outlook. If you saw the show, you know that he painted a very sobering picture regarding the federal government’s ability to meet its future obligations.

If you didn’t see the show, Mr. Walker’s theme was simple: government entitlement spending is like a runaway freight train headed straight at American taxpayers. He singled out the Medicare prescription drug bill, passed by Congress at the end of 2003, as “probably the most fiscally irresponsible piece of legislation since the 1960s.”

When it comes to Social Security and Medicare, the federal government simply won’t be able to keep its promises in the future. That is the reality every American should get used to, despite the grand promises of Washington reformers. Our entitlement system can’t be reformed- it’s too late. And the Medicare prescription drug bill is the final nail in the coffin.

The financial impact of the drug bill cannot be overstated. Government projections that the program would cost $400 billion over the next decade were a joke, as everyone in Congress knew even as they voted for the bill. The real cost will be at least $1 trillion in the first decade alone, and much more in following decades as the American population grows older.

The Medicare “trust fund” is already badly in the red, and the only solution will be a dramatic increase in payroll taxes for younger workers. The National Taxpayers Union reports that Medicare will consume nearly 40% of the nation’s GDP after several decades because of the new drug benefit. That’s not 40% of federal revenues, or 40% of federal spending, but rather 40 % of the nation’s entire private sector output!

The politicians who get reelected by passing such incredibly shortsighted legislation will never have to answer to future generations saddled with huge federal deficits. Those generations are the real victims, as they cannot object to the debts being incurred today in their names.

The official national debt figure, now approaching $9 trillion, reflects only what the federal government owes in current debts on money already borrowed. It does not reflect what the federal government has promised to pay millions of Americans in entitlement benefits down the road. Those future obligations put our real debt figure at roughly fifty trillion dollars- a staggering sum that is about as large as the total household net worth of the entire United States. Your share of this fifty trillion amounts to about $175,000.

Don’t believe for a second that we can grow our way out of the problem through a prosperous economy that yields higher future tax revenues. If present trends continue, by 2040 the entire federal budget will be consumed by Social Security and Medicare alone. The only options for balancing the budget would be cutting total federal spending by about 60%, or doubling federal taxes. To close the long-term entitlement gap, the U.S. economy would have to grow by double digits every year for the next 75 years.

The answer to these critical financial realities is simple, but not easy: We must rethink the very role of government in our society. Anything less, any tinkering or “reform,” won’t cut it. A good start would be for Congress to repeal the Medicare prescription drug bill.

[Lord]

Over the past 10 years, the year SS would run out of funds has been delayed 13 years. Not much of an impending crisis if you ask me. The best suggestion I have is wait for another 10 years.

The inflation adjustment would be very pernicious and would lead to SS providing only enough for yesterday's retirement. Going broke would be a better solution.

The real problem is healthcare though. It will happen and far sooner than SS and require much greater changes. If they don't have a healthcare plan, they should just stop talking about SS.

[Kevin]

I wouldn't mind abolishing the whole system for anyone under 40. For the "tweeners", we could pro-rate their benefit. For those already getting benefits, nothing changes. It shouldn't be the main source of retirement income, people need to take care of that on their own. Wasn't originally setup as kind of a backup system anyway?

[Lord]

The problem with 'people need to take care of it themselves' is a large number can't and a large number won't, so do you then want to raise taxes later to pay for them? SS is only enough for a meager retirement as is.

[Foobarista]

I'd like to do away with the concept of "retirement age", except for having a minimum age at which you can begin to collect SS. The idea is that the later you start taking SS, the more you get. So, if you retire at 60 and get a pension, you can choose to have another job to supplement your pension and defer collecting SS until you're 70 or more if you choose - and get a bigger SS payout when you do so. (From the cold perspective of the government, it would benefit since some people would "bet wrong" by dying too soon and would not collect SS - well-understood actuarial stuff would make sure the government "won" this bet.)

It would also let you avoid most taxes on SS, and quit the silly situation where you're both collecting SS, paying taxes on it, and paying into SS at the same time if you have a job.

All the conventional reforms, except raising the wage cap, are highly regressive. Increasing benefit age is regressive since the poor have shorter lifespans on average than the rest of us. Increasing taxes and/or reducing benefits are obviously regressive.

So I am an ardent supporter of privatization.

[Hugh Loebner]

Why do you object to raising the income cap? You should explain your preference.

Why should someone earning $50k a year pays SS tax on his/her entire income, but someone earning 5,000k a year only pay it on a small percentage?

How regressive can a tax be?

[Mark]

I say abolish the wage cap completely. Why should the person making 200k per year, who is probably in line for early retirement anyway, get a break, when the low income folks get stuck with a higher retirement age?

I usually agree with you FMF, but on this one I cannot. There does need to be reform, but raising the retirement age without lifting the wage cap is unfair.

[Foobarista]

As for "raising the cap", it's a 10% tax increase on people who are already heavily taxed. (Yes, I'm including the mythical "employer share" here - it's part of one's compensation, as anyone who pays self-employment tax knows well.) It would raise taxes to over 40% on wage income in the $100K salary range, and nearly 50% if state taxes are included. For higher incomes, it would push taxes over 50%.

I suppose one may believe that anyone who makes a good salary should work to pay for the government for half their working life, but don't be surprised if lots of them move to lower tax places like the UK (yes, taxes are lower there at high levels) and more pleasant parts of East Asia. Or, since SS is only charged on wage/salary income, don't be surprised if people figure out how to get compensated in other ways to avoid it.

SS needs serious reform, but keeping the current scheme and simply "raise the cap" won't get it done, even though it is a guaranteed applause-line on the campaign trail.

[Nathan]

Technically speaking, Fairtax isn't based on wealth. It's primarily based on spending, because it's a national sales tax. It has a credit component for those near the poverty line, but otherwise it's all just based on how much you spend.

I wonder if Becky read the whole page in her link, or if she was being intentionally misleading? Please, check the facts from the article:

But life expectancy at birth in the early decades of the 20th century was low due mainly to high infant mortality, and someone who died as a child would never have worked and paid into Social Security. A more appropriate measure is probably life expectancy after attainment of adulthood.

...

As Table 1 indicates, the average life expectancy at age 65 (i.e., the number of years a person could be expected to receive unreduced Social Security retirement benefits) has increased a modest 5 years (on average) since 1940.

[FMF]

For those of you asking about why I oppose rasing the cap, see Foobarista's comment.

[Deezer]

I would disagree that the FairTax is dead. In fact, it is gaining momentum like never before. Presidental candidates are using it as part of their platform, and there are efforts to put it on the November 2008 ballot in several states, including Michigan.

[Deezer]

I would disagree that the FairTax is dead. In fact, it is gaining momentum like never before. Presidental candidates are using it as part of their platform, and there are efforts to put it on the November 2008 ballot in several states, including Michigan.