Please ensure Javascript is enabled for purposes of website accessibility

How Will the Next President Change Social Security?

By Dan Caplinger – Jul 3, 2016 at 6:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The 2016 election will be critical for retirees.

Image source: Getty Images.

Social Security has gotten a lot of attention in the 2016 presidential campaign. The program faces long-term financial challenges, but more fundamentally, people disagree about whether Social Security needs to expand to provide a wider array of benefits or remain in its current form with adjustments made to limit its financial burden on the federal budget. Depending on who wins the election in November, changes to Social Security could be far-reaching and have implications for Americans decades into the future.

Presidential positions on Social Security

The presumptive nominees of the two major political parties have vastly different approaches to Social Security, which they expressed when AARP asked them to share their positions on the program. Donald Trump takes a more hands-off approach to Social Security, arguing that creating a more robust and growing economy should increase payroll tax revenue, which in turn should replenish Social Security's trust funds and allow the program to maintain benefits. Trump's emphasis on immigration reform also has implications for Social Security, because under current law, non-U.S. citizens who are in the country lawfully and meet all eligibility requirements can get benefits.

Hillary Clinton makes more specific statements about how she would change Social Security as president. She would oppose privatization efforts and fight against potential reductions to annual cost-of-living adjustments. She would keep the retirement age at its current level and oppose any tax increases or benefit cuts specifically on middle-class Americans. To shore up the program's finances, she proposes raising payroll taxes on high-income earners.

In addition, Clinton would expand Social Security to provide more benefits to caregivers who took time from their careers to raise children or provide for aging parents or other family members. Allowing caregivers to receive Social Security credits and later receive benefits based on some measure of the value of the service they're providing to their families would enhance their benefits, and Clinton believes that increasing taxes for the wealthy is a fair price to pay for greater financial security for those who need it.

What's on the table for Social Security?

AIER senior research fellow Polina Vlasenko. Image source: National Press Foundation.

Coming up with viable solutions will require the next president to work with Congress, and partisan politics could make that difficult. Polina Vlasenko, senior research fellow of the American Institute for Economic Research, recently discussed many of the 36 different potential changes to Social Security that could narrow the current expected funding gap for the program over the next 75 years. Vlasenko's presentation to fellows at the National Press Foundation's program on aging and retirement issues boiled down to two simple remedies: either raise revenue or cut benefits.

To raise revenue, there are several options. Boosting the payroll tax would put more of the burden on current workers. Estimates peg the necessary increase at 2.7 percentage points when you consider the worker and employer contributions combined. Raising the current wage cap of $118,500 on Social Security taxes would also increase program revenue. Lifting the cap to $275,000 would close about 30% of the anticipated shortfall.

Meanwhile, on the benefit side, Vlasenko noted that it would take a 16.4% cut right now to close the funding gap. While that solution is beyond infeasible, it's effectively what will happen in the mid-2030s if no changes have been made and Social Security's reserve funds are allowed to run out. Raising the retirement age would act as a benefit cut, and more technical measures, like changing how cost-of-living adjustments are calculated, could also make a relatively small yet meaningful impact.

What's likely to happen?

In the end, Vlasenko believes that the political process will require everyone to make sacrifices for the good of the program. Yet her suggested solutions largely discounted the political pressure from the Democratic Party to expand Social Security, which in turn would exacerbate the shortfall and require more aggressive measures to increase program revenue. Proposals to subject even greater amounts of income to Social Security payroll taxation could provide funding for benefit expansion, but many policymakers question whether a populist movement among the lower- and middle-class could muster enough momentum to pass such proposals in the face of opposition from high-income taxpayers.

Given the hesitation among lawmakers to tackle Social Security head-on, the next president will face the monumental challenge of uniting with Congress to take action and strengthen the system. As critical dates in the Social Security program's looming crisis draw closer, political pressure to do something will rise. But whoever takes office in January 2017 might not manage to build enough of a sense of urgency to push reforms into law unless the American public demands action from the government.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.