How Trump or Harris would address Social Security’s problems
The next president and Congress will need to tackle the financial challenges facing Social Security if we’re going to avert a sharp cut in benefits to the 68 million retired or disabled Americans who rely on the program.
Social Security’s combined retirement and disability trust funds are on track to be depleted in 2035, according to the program's trustees. If we reach that point, we will be confronting a drastic across-the-board benefit cut of roughly 17%.
How would the two major-party candidates for president handle the problem?
Neither Kamala Harris nor Donald Trump has articulated a specific plan for fixing Social Security - but my Reuters column this week examines what we do know as the election approaches.
Trump has said he would not cut benefits - instead, he promises to address the problem through economic growth. No actuarial expert on Social Security that I know of buys that. Social Security has two main financial problems: 1) the falling ratio of workers to beneficiaries and 2) income inequality, which pushes a higher share of wages above the FICA tax cap. So, it’s fair to say that Trump has no serious plan to avert the approaching benefit cuts.
And he has tossed out several ideas on the campaign trail that actually would pull that insolvency date closer by about three years, according to an analysis by the Committee for a Responsible Federal Budget (CRFB), a bipartisan organization focused on federal fiscal policy. These include:
Eliminate taxation of benefits: Higher-income beneficiaries pay income taxes on part of their benefits, and those dollars flow into the Social Security trust funds. Eliminating this tax would cost the program $950 billion over 10 years, according to CRFB. (There’s a case to be made for reform of this tax, as I wrote recently - but it should be done in the context of broader Social Security reform.)
End taxes on overtime and tips: This would reduce payroll tax collections, also costing Social Security $950 billion over 10 years, CRFB said.
Restrict immigration, impose tariffs: These moves would reduce the number of immigrant workers paying in to the Social Security trust funds, CRFB said. Tariffs would either increase cost-of-living adjustments through higher inflation or reduce taxable payroll due to reduced economic activity. Taken together, CRFB said these two plans would cost the trust funds $400 billion over 10 years.
CRFB’s analysis of immigration restrictions should not be overlooked, because it contradicts the Republican talking point that illegal immigration is destroying Social Security. The opposite is true - the shrinking ratio of workers to retirees is a key cause of Social Security’s financial challenges; more young workers paying into the system contributes to solvency. Undocumented workers typically get jobs using fake or borrowed Social Security numbers, and they pay FICA taxes - but rarely actually claim benefits.
Harris has promised not to cut benefits, and has indicated support for restoring trust-fund solvency with new taxes on the wealthy. Like Trump, Harris supports eliminating taxes on tips, although she coupled that with a call for higher minimum wages.
It’s also important to look beyond the candidates to consider the track record of the political parties on Social Security reform.
In recent years, Congressional Democrats have consistently pushed for legislation that would address solvency by changing the current cap on the amount of wages subject to payroll taxes ($168,600 this year,). They’d like to add a new tier of payroll taxes for higher-income Americans, starting either at $250,000 or $400,000, depending on the proposal. They’ve also proposed adding new taxes on investment income. Some Democratic bills also call for modest expansion of benefits.
Harris co-sponsored some of these bills when she served in the Senate. Likewise, her running mate Tim Walz was a sponsor when he served in the House of Representatives.
Republicans in Congress have consistently supported benefit cuts as a way to solve Social Security’s problems. For example, the ultra-right Heritage Foundation is on the record supporting an increase in the retirement age to 69 from 67, with further increases indexed to U.S. life expectancy.
You’ll often hear Republicans say that these changes would exempt current retirees and people close to retirement - and that’s true. Higher retirement ages likely would be phased in over many years. But this would be a very unjust change to impose on today’s younger workers.
Everyone born in 1960 or later already has taken a benefit cut of roughly 13% due to the reforms of 1983, which phased in an increase in Social Security’s full retirement age to 67 from 65. Raising the full retirement age further, to 69, would result in another average cut of 13%, according to the Congressional Budget Office.
I examined this question in more detail in my recent New York Times Retiring column on Social Security and young people. Ask yourself - are you OK cutting Social Security for your children and grandchildren?
I’m not.
How not to talk about Medicare’s finances
Mainstream media reporting on Social Security and Medicare typically ranges from mediocre to bad, but I have higher expectations when it comes to the PBS NewsHour. This is our highest-quality nightly network news broadcast, but its report last night on Social Security, Medicare and the presidential election really fell short.
On Social Security, the PBS report covers some of the same points that I make above on Trump, Harris and the CRFB analysis. But it treats the candidates in isolation from their political parties, which have dramatically different views on the future of Social Security and Medicare.
As a result, the NewsHour discussion of Social Security doesn’t mention GOP proposals to raise the retirement age - or the fact that this would translate into very sharp benefit cuts for today’s younger workers.
Meanwhile, the PBS discussion of Medicare is deeply flawed.
First, there’s no mention of the fact that the Biden-Harris administration passed into law the most important Medicare reforms of the last two decades - the Inflation Reduction Act. The IRA transforms Part D prescription drug coverage into much strong insurance.
Beyond that, reporter Lisa Desjardins demonstrates no understanding whatever of how Medicare’s finances actually work. The program’s various parts have different financing mechanisms, but she just lumps it all together as “the plan.”
What are the components of “the plan?” Here’s a quick refresher of how it actually works:
The Hospital Insurance trust fund (which funds Part A) is financed by FICA taxes and does face a solvency question - although most recently the deadline for action has receded - the HI trust fund will be able to pay 100 percent of total scheduled benefits until 2036, five years later than reported last year. Desjardins warns that insolvency will mean benefit cuts, although the solution likely will involve some cuts in reimbursement rates to hospitals and an injection of new revenue. Anyway, the trustee forecast for the HI trust fund bounces around quite a bit from year to year, so it’s not at all clear we’ll face a solvency crisis anytime soon - it’s just something worth keeping an eye on.
Part B (outpatient services), Part C (Medicare Advantage) and Part D (prescription drugs) all are financed by a combination of enrollee premiums and general government revenue, so they don’t face any solvency questions. The same is true Medigap supplemental coverage, which is financed by enrollee premiums.
From there, Desjardins swings into a quick discussion of promises by Harris to expand drug price negotiations with pharmaceutical companies - although we learn - by the way - that Harris wants to use those savings to finance to create a new benefit for home health care.
That home health care idea is the biggest Medicare proposal coming from Harris, but no matter - we’re not going to hear anything much about it from PBS.
Next week: My guide to Medicare enrollment season
Look for a post from me early next week on Medicare’s annual enrollment period, which is underway now and runs through December 7th.
The program’s prescription drug insurance will be much stronger — and easier to understand — as a result of the Inflation Reduction Act of 2022. But the changes make it all the more important to review your coverage options.
What I’m reading
They’re giving all their money to scammers, and the kids can’t stop them . . .What drugmakers didn’t tell volunteers for Alzheimer’s drug trials . . . Medicare paid insurers billions for questionable home diagnoses . . . She’s a retirement expert and still made mistakes with her plan . . . Do people in blue zones really live longer?