America’s next president may bring substantial changes to Social Security, depending on who is elected. Both Republican and Democratic candidates have presented their ideas for change (or no change) at the last few debates. Current positions primarily focus on expansion or reduction, but so far haven’t mentioned workers who lack coverage.
So what do the 2016 presidential candidates want to do to Social Security?
- Hillary Clinton says she will preserve benefits and enhance certain aspects of the program, such as benefits for vulnerable populations. She proposes lifting the payroll tax cap, broadening the tax base, and raising survivor benefits for groups such as widows and giving caregiver credits for those who have removed themselves from the workforce to care for children or ailing family members.
- Bernie Sanders proposes a broader expansion of the program with general increases to the minimum benefit and using a higher price index to make cost-of-living-adjustments (COLA) for more generous benefits. Similar to Clinton, Sanders also proposes lifting the current income cap, so that high-income individuals pay the same percentage on their income toward Social Security. Currently, high-income earners only need to pay Social Security taxes on a portion (the first $118,500) of their income. Sanders proposes lifting the cap, so that individual making over $250,000 will be taxed at the same percentage as other workers.
- Ted Cruz says he will pass a general reduction of benefits for younger workers and would allow workers to invest a portion of their payroll taxes into a private account. Cruz would also raise the full retirement age and calculate initial benefits to match inflation rather than wage growth. Inflation typically grows slower than wages, so tying benefits to inflation would result in a lower benefits. Cruz says he will not institute these changes for those currently nearing retirement.
- John Kasich proposes reducing benefits for high-income workers while maintaining benefits for those who depend upon Social Security. Unlike Cruz and Rubio, he has not proposed raising the full retirement age.
- Marco Rubio intends to gradually raise the full retirement age for new workers, but not for workers nearing retirement, and reduce benefits for higher earners, while also increasing the current minimum benefit for low-income workers. Rubio also proposes eliminating the Social Security earnings test, a provision which withholds a portion of benefits for older workers who haven’t reached full retirement and make a certain threshold of income. While the earnings test does not reduce total benefits, and instead only delays benefits, many workers perceive the provision as a tax penalty. As a result, the earning test can deter older workers from working. In addition to these proposals, Rubio would also allow workers to participate in the Thrift Savings Plan, a defined contribution or 401k-type plan currently only available to federal workers.
- Donald Trump hasn’t proposed a specific plan on Social Security on his website at this time, but has verbally committed to no changes. In the last Republican debate in Miami, Trump says, “it is my absolute intention to leave Social Security the way it is. Not increase the age and to leave it as is.”
Besides expansion or reduction, however, none of the candidates have considered extending coverage to uncovered workers—despite the potential appeal to both parties. Over 1 million teachers, and 6.5 million government workers hold jobs that aren’t covered by Social Security. Extending coverage to all these workers would seem like a natural complement to expansion of benefits for workers who are already covered. On the left, however, public sector unions remain staunchly opposed to mandatory coverage because these groups prefer a standalone pension benefit, which tend to be more generous to full-career workers than Social Security. But even the current candidates on the right have overlooked universal Social Security coverage, a move which would actually reduce the program’s deficit by more evenly distributing the program’s legacy costs.
Lack of coverage also has implications for state and local pension plans. Last week, my colleague Chad Aldeman, released a report that examines how IRS tax provisions allow states without full Social Security coverage to maintain outdated state pension plans.
As the primary turns to the general election season, candidates will need to start considering the complete picture around Social Security and retirement.