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The Future of Social Security

Jul. 20, 2016 Kiplinger

With Social Security’s financial future increasingly in doubt, both major political parties are weighing in on the issue in advance of the presidential election this fall. That’s a far cry from the days when the program was seen as the third rail of American politics, able to kill the careers of politicians who touched it.

The big question on everyone’s mind, of course, is will monthly benefits be cut? The technical answer: They certainly can be, by 21%, if nothing is done by 2034. The realistic answer: They won’t be. Lawmakers, with an eye on reelection, will fix the leaky account before reduced checks are ever sent out, just as they cleaned up past problems at the last minute.

The unknowns: When will Washington act? And which of two divergent cures will be attempted? That depends on which party is in the White House and the size of the majority in the Senate.

Neither Hillary Clinton nor Donald Trump are likely to be in power when the big changes are made. But their proposals are helpful in framing the possible solutions.

Thanks in part to the insurgent presidential candidacy of Sen. Bernie Sanders of Vermont, Democrats now want to expand the program. Clinton has proposed adding benefits for widows and for individuals who temporarily leave the workforce to be caregivers. She’d cover the costs by applying the payroll tax to folks with more than $250,000 in earned income each year. (For now, earned income above $118,500 isn’t taxed for Social Security purposes. Under Clinton’s plan, income in excess of $118,500 but no more than $250,000 would still not be taxed.)

According to Andrew Biggs of the American Enterprise Institute, her plan would keep the program solvent for at least 75 years, with enough money left for modest benefit increases. The problem, of course, is that it would go over like a lead balloon with Republicans.

Donald Trump has pledged not to touch the program. His plan to close the funding gap: Create new jobs and collect payroll taxes from the growing number of workers. That puts him at odds with other prominent Republicans, in particular House Speaker Paul Ryan, although he might be persuaded to back Ryan if Trump is elected.

Ryan supports incremental reforms, such as changing the way the government calculates annual cost-of-living adjustments and gradually raising the full retirement age to 69 or 70, up from 67 now. The moves would be part of a broader effort to trim government spending.

Over time, pushing off the age of full retirement would decrease the amount the government pays out in benefits and recalculating COLAs would result in smaller increases. But, critics point out, the moves would also hurt low-income recipients who rely on Social Security the most.

None of the changes would apply to folks already receiving Social Security, assuming cuts are avoided in 18 years.

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