Social Security alone consumes nearly a quarter of the federal budget.
At this week’s vice presidential debate, Democrat Tim Kaine and Republican Mike Pence spoke about how the administrations they hope to join would deal with the challenges facing safety net programs like it.
Social Security is a pay-as-you-go program, in which benefits for retirees and others are largely funded through the payroll taxes collected from current workers. As baby boomers retire, there will be more people drawing benefits out of the system and relatively fewer workers paying in. The Social Security trust fund helps to cushion that gap. But forecasters expect the trust fund will be exhausted in about 20 years. Once that happens, there will still be enough money coming into the system from payroll taxes to cover about 75 percent of retirees’ benefits. But in order to keep paying 100 percent, some changes will be needed. The sooner policymakers act, the less drastic those changes will need to be.
Lots of different fixes have been suggested for Social Security but they basically boil down to a few: cut benefits, increase taxes, or some combination of the two. Ideas such as raising the retirement age or adopting less generous cost-of-living adjustments are effectively benefit cuts. Likewise, tax increases could take many forms.
Hillary Clinton has ruled out cutting benefits. In fact, she wants to increase benefits for some people, including widows and those who drop out of the workforce temporarily to care for family members. “We have too many Social Security recipients right now who are barely making it,” Clinton said in a town hall with MSNBC earlier this year.
Clinton is banking on some form of tax increase to ensure Social Security can keep paying its bills.
“We need to get more money into the Social Security trust fund to keep it solvent far into the future,” Clinton told MSNBC. “There are a couple of different ways I’m looking at. And I’ll have to talk with the Congress to try to figure out what’s the best way forward.”
One idea Clinton has floated is lifting the cap on income subject to the Social Security tax. Right now, income over $118,500 is not taxed for Social Security. If that cap were eliminated and benefits were unchanged, that would solve about 88 percent of Social Security’s long-run funding problem. (By comparison, adopting a less generous cost-of-living formula would solve about 20 percent of the problem and gradually raising the retirement age would solve about 40 percent.)
Clinton has also suggested taxing capital gains and other investment income to help fund Social Security.
Like Hillary Clinton, Trump has rejected any kind of benefits cut. Unlike Clinton, he’s not looking to raise taxes.
“We’re going to save Social Security,” Trump told supporters at an Iowa campaign rally late last year. “We’re not going to raise the age and we’re not going to do all the things that everybody else is talking about doing. They’re all talking about doing it and you don’t have to. We’re going to bring our jobs back. We’re going to make our economy incredible again.”
Stronger economic growth would help because more jobs and bigger paychecks would mean more payroll taxes flowing into the system. But many observers are skeptical that the United States can realistically achieve the kind of growth rates needed to fix Social Security without other changes.
Trump’s immigration policies could also aggravate the funding challenge. He’s called for deporting millions of immigrants living in the country illegally. Many of those immigrants pay into the Social Security system but don’t draw benefits, effectively subsidizing U.S. citizens.
Medicare provides health benefits for older Americans. In recent years, Medicare costs have been rising more slowly than they used to, but they’re still climbing faster than the overall economy. Unless policymakers get a handle on those costs, taxpayers will be on the hook for growing expenses.
Clinton and Trump agree on some measures, such as trying to rein in the costs of prescription drugs. And both Clinton and Trump reject the idea of gradually converting Medicare to a voucher system in which the government subsidizes private insurance for future retirees. That plan is still an option in the GOP platform, however.
Trump has also promised to repeal the Affordable Care Act, including pilot programs that aim to promote more efficient delivery of health care.