Campaign issues: Social Security

See reader comment posted at the end.

SAFE has posed a wide range of policy questions for the presidential candidates. Over time, we will attempt to report where they (now down to 5) stand on them. Letter, 6/9/15.

Here’s our question about Social Security and Medicare, which currently (FY 2016) cost $1.5 trillion per year. (The annual bill for national defense and all the other traditional functions of the federal government is about $1.2 trillion.)

4. With an aging population, the cost of Social Security and Medicare benefits (not considered part of the War on Poverty) will grow rapidly in coming years. The resulting outlook: (a) outlays for traditional government functions will be under pressure, (b) taxes will be raised, and (c) deficits will soar. Fiscal experts have been warning for years that adjustments must be made, and that there will be a disastrous fiscal meltdown if action is not taken in time. See, e.g., Comeback America, David Walker, 2010. http://www.s-a-f-e.org/comeback_doc.htm Instead of addressing this problem, our political leaders have kept kicking the can down the road. Are you prepared to change this, and how would you go about it?

Other observers are tracking the candidates’ positions on entitlements too, albeit not necessarily for our reasons. For example, the AARP mantra is that “Every candidate should have a plan to keep Social Security strong. Does yours?” And by AARP’s reckoning, 4 of the 5 surviving candidates “have a plan” for Social Security, while one (Donald Trump) does not. Social Security: 2016 election watch, aarp.org, accessed
3/24/16.

One could argue that Trump does have a plan, or that some of the other candidates don’t, but here’s the real question: Which candidate has the best plan for ensuring that Social Security benefits will remain affordable – forget the trust fund, the program is funded on a pay as you go basis and is already running in the red - as the Baby Boomers retire and the ratio of active workers to beneficiaries declines. Discussion follows on a candidate-by-candidate basis; their leadoff quotes were taken from the aforesaid AARP site.

DONALD TRUMP [Miami, FL, 3/10/2016] - Well, first of all, I want you to understand that the Democrats *** are doing nothing with Social Security. They're leaving it the way it is. In fact, they want to increase it. *** I will do everything within my power not to touch Social Security, to leave it the way it is; to make this country rich again; to bring back our jobs; to get rid of deficits; to get rid of waste, fraud and abuse, which is rampant in this country, rampant, totally rampant. And it's my absolute intention to leave Social Security the way it is. Not increase the [retirement] age and to leave it as is.

Leaving Social Security alone won’t cure the growing shortfall between plan outlays and dedicated tax revenues, of course, but money is fungible and the budget will be balanced (or not) on an overall basis. If Trump had an actionable plan to eliminate deficits by boosting economic results, eliminating waste, fraud and abuse, etc., his stand-pat approach for Social Security might be acceptable.

As previously discussed, however, Trump’s fiscal proposals seem more likely to increase deficits than to reduce them. His tax plan would reduce government revenue by about $1T per year. Campaign issues: taxes,
12/7/15. He proposes to rebuild the US military, which would be costly, and his rhetoric about cutting spending in other areas is vague. Campaign issues: spending, 2/8/16.

TED CRUZ [Miami, FL, 3/10/2016] - Social Security right now is careening towards insolvency, and it's irresponsible. And any politician that doesn't step forward and address it is not being a real leader. We need to see political courage to take this on and save and strengthen Social Security. And as president, what I will do for seniors, for anyone at or near retirement, there will be no changes whatsoever. Every benefit will be protected to the letter. But for younger workers, we need to change the rate of growth of benefits so it matches inflation instead of exceeding inflation.

Cruz acknowledges the gravity of the growing Social Security shortfall and advocates (1) raising the retirement age for future beneficiaries, and (2) adjusting the Cost of Living Adjustment (COLA). He has also expressed support for personal accounts to give participants some skin in the game. Where do the candidates stand on Social Security? David Williams, townhall.com,
2/23/16.

The first two changes would shore up the solvency of Social Security, according to Cruz, while the third would benefit younger workers who chose to participate. Cruz website, extract from transcript of a Des Moines, Iowa event,
9/25/15.

Those two changes together bring Social Security into solvency. But then the third piece, and I think this is critically important for younger workers, we ought to allow them to keep a portion of their tax payments in a personal account that they own, that they control, and that they can pass on to their kids and grandkids. If we do that, and as president I intend to lead and to work to bring people together in bipartisan cooperation to actually preserve and strengthen Social Security for generations to come.

JOHN KASICH [Miami, FL, 3/10/2016] - I have a plan to fix [Social Security] that doesn't even require raising the retirement age. If you've had wealth throughout your lifetime, when the time comes to be on Social Security, you'll still get it. It will just simply be less. And for those people who depend on that Social Security, they'll get their full benefit. That's the way it will work. *** Do you have to take on entitlement programs to balance a budget? Yes. It doesn't mean you have to cut them. It means you need to innovate them, the way we do things in the 21st Century.

Back in 1999, when the budget was being balanced and surpluses were projected, Kasich advocated a plan to begin funding Social Security and offering personal accounts. It wasn’t enacted, for whatever reason, and at this point his basic idea seems to be doing whatever could be agreed to on a bipartisan basis – most likely means testing benefits because there isn’t enough money available to pay everyone the full amounts. Kasich website, extract from an event at Salem, NH,
8/21/15.

When we did the balanced budget [in the late 1990s] we did some changes in Medicare, we made the wealthier pay for some of the premium for part B. But I don’t want to turn Social Security into a welfare program okay? *** And any Social Security plan, Medicare plan, we’re going to do in this country has to have some bipartisan support because [otherwise] you get demagogue[ry] that doesn’t pass and you’re farther in the [hole]. The same is true on immigration. You’re not going to fix an immigration problem without having both parties agreeing to fix it. So those principles that I laid out for you would be what I would follow. But we have to make sure that we work some Democrats in if I’m president so we can actually pass something that’s going to work.

HILLARY CLINTON [North Charleston, SC, 2/25/2016] - *** the first thing we have to do is make sure the Republicans don’t privatize [Social Security]. That is a continuing threat from those who are currently competing for the Republican nomination. And then secondly we’ve got to make sure we extend the life of the Social Security trust fund and I’ve been talking about ways we can do that. And thirdly is this point that you just raised sir. Low-wage workers didn’t make enough to have a decent monthly benefit under Social Security, and I worry about them. Caregivers, people, predominantly women, not completely but mostly women, who either went in and out of the workforce or who devoted their whole lives to raising their children, taking care of their spouses, taking care of their aging parents and other relatives.

Clinton’s main thrust is defensive, namely to oppose any significant changes to Social Security that may be proposed by Republicans. No cuts in COLA – no further increase in the normal retirement age (an increase from 65 to 67 is currently being phased in) – no benefit cuts or broadly-based tax increases (but the wealthy would be asked to pay more) – no personal accounts (only Ted Cruz, among the current GOP candidates has suggested this idea). She envisions enhanced benefits for widows, caregivers, etc. How presidential candidates would change Social Security, Russ Wiles, USA Today,
3/15/16.

BERNIE SANDERS [Summit, IL, 3/11/2016] - Today in America millions of seniors and disabled veterans are trying to get by on $11, $12,000 per year Social Security. You know what? You can’t get by on $11, $12,000 per year Social Security. Now, my Republican colleagues in the congress, they say we should cut Social Security benefits. Well, I have some bad news for them. We are not going to cut Social Security, we are going to expand Social Security benefits.

Sanders would increase Social Security benefits generally, not just for low-income seniors, and his total benefit increases would be nearly three times as large as those proposed by Clinton. There would also be substantial tax increases (e.g., phasing out the payroll tax cap for high earners and imposing a new 6.2% investment income tax for households with income over $250K). Under either the Clinton or Sanders plan, the effective top marginal tax rate would rise by about 12 percentage points. Hillary’s and Bernie’s pie-in-the-sky Social Security proposals, Andrew Biggs, Wall Street Journal,
3/17/16.

EVALUATION – The current cost of Social Security is nearing $1 trillion per year, and unless something changes the bill is headed much higher. While Hillary Clinton and Bernie Sanders are arguably justified in calling for tax increases, it’s not clear why the well-to-do should bear the entire burden. Who knows what harm would be done to the US economy by a 12 percentage point increase in the top marginal tax rate? The potential damage is compounded by their respective proposals for increasing Social Security benefits instead of applying the added tax revenues to deficit reduction.

Donald Trump’s proposal to leave things as is wouldn’t solve the Social Security shortfall, but at least it wouldn’t make that problem worse. And a decision to raise taxes could always be made a year or two later; it shouldn’t be hard to line up Democratic support. We’re more concerned with the fuzziness of Trump’s overall fiscal approach.

It seems doubtful that Ted Cruz’s proposals would suffice to restore the solvency of Social Security, particularly since he doesn’t mention the need for tightening up disability awards, but they would at least represent a step in the right direction. He also deserves credit for resurrecting the idea of personal accounts, which in our view would be an essential element of any plan to really fix Social Security versus just periodically bailing it out with additional tax revenues. See SAFE’s
Social Security page for discussion.

John Kasich’s historical perspective is interesting, and it’s too bad that his personal account plan for Social Security wasn’t given serious consideration in 1999. But that’s over and done with, and his current approach boils down to “let’s make a deal.” It seems to us that a concrete proposal would be more to the point.

In sum, we would rate the positions of the candidates on Social Security as follows
(1 -worth considering; 2 – not helpful; 3 – misguided):

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Some readers may have seen letters from Money Morning News or others re dramatic curtailments of Social Security benefits by the Bipartisan Budget Act (HR 1314) that was enacted last fall. The pitch is that millions of Americans may be eligible for extra benefits, which they will miss out on if they don’t act by May 1, 2016. “After that date, as many as 21.3 million Americans could no longer be able to collect an estimated $11.4 billion in crucial benefits.” Statements by economist Laurence Kotlikoff and Forbes Magazine are cited in the discussion.

Could it be that Congress actually did something to reduce the cost of Social Security, and the American public didn’t hear about it? Maybe, but $11.4B in savings wouldn’t be large enough to have much impact on the overall Social Security problem.

The legislative text is posted on the
Thomas site. Search for HR 1314 (2015), download PDF. See Section 831, “closure of unintended loopholes.” The apparent intent is to prevent individuals from (a) receiving retirement or survivor benefits based in part or whole on a spouse’s lifetime earnings while the spouse’s benefits are being postponed, or (b) suspending their own benefits during periods in which they would otherwise lose them. Section (a) becomes effective when the individual attains age 62 in any year after 2015. Section (b) becomes effective 180 days after the legislation was enacted, which would be on or about May 1, 2016.

The Congressional Budget Office did not report any estimated change in outlays due to Section 831.
The only material savings from the Social Security provisions of the Budget Act that the CBO projected was about $4B in reduced outlays over the next 10 years as the result of new medical review provisions for disability awards. Scoring of HR 1341, 10/28/15.

Nevertheless, some people apparently will wind up receiving lesser retirement or survivor benefits than they were expecting. Here’s a report that lays out some illustrative situations. Happily, it seems that a last minute change was made to correct one of the “most egregious provisions.” Congress is pulling the rug out of people’s retirement decisions, Laurence Kotlikoff, PBS Newshour,
11/1/15.

My column on Monday, however, may have done some small good to correct one of the bill’s most egregious provisions! The House Budget bill passed Wednesday was, apparently, amended so that spouses and children now collecting benefits on the work records of a husband, wife or parent who filed and suspended can continue to do so rather than have their benefits stop six months after the bill’s passage. Also, those who file and suspend in the six months after the bill is enacted will be grandfathered with respect to providing auxiliary benefits.

A word to wise, therefore: “Anyone who is planning on filing and suspending to get their children or spouses full spousal benefits needs to do so [
by May 1, 2016]. This pertains to anyone now over full retirement age and anyone who will reach full retirement age [by said date].”

* * * * * FEEDBACK * * * * *

Social Security participants who die at a relatively young age without eligible survivors will get nothing for the money they paid in. That’s fundamentally unfair.

Also, Social Security is a Ponzi scheme, as the money to pay the promised benefits that have been promised on an overall basis will inevitably run out at some point. Politicians make the laws, however, so they will exempt themselves from legal responsibility.

This is an example of the age-old political exercise known as the Peter/Paul principle...when the government has the power to take money from Peter to reward Paul, it can always depend on the support of Paul. Accordingly, using Bernie Sanders’ favorite `R` word, let the “revolution” begin again...no more taxation, without representation. – SAFE member (Arizona)


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