Social Security is the hamster that keeps the financial wheel turning for many seniors. According to Gallup, about three in five retirees count on their Social Security check for the majority of their annual income.
Unfortunately, Social Security isn't in great shape. According to the latest report from the Social Security Board of Trustees, the Old-Age, Survivors, and Disability Insurance Trust -- which is what pays benefits to the 60 million-plus Social Security recipients on a monthly basis -- is slated to burn through approximately $2.8 trillion in spare cash by 2034.
The reason? Baby boomers are retiring at a pace of more than 10,000 per day for the next 15 years, and people are living longer than ever. Social Security wasn't designed to account for substantially longer life expectancies or huge generations like the baby boomers, so as more people draw benefits for longer periods of time, the program is under heavy strain.
According to the Trustees, a benefit cut of up to 21% may be necessary by 2034 if lawmakers on Capitol Hill don't make changes that raise revenue, cut benefits, or both. Americans are clearly worried about the program's future -- and thus it has become a major debate subject in this year's presidential campaign.
Clinton and Kaine share many Social Security similarities
Democratic presidential candidate Hillary Clinton has made Social Security one of her foremost issues, trumpeting the importance of raising benefits for our nation's retired workers, as well as women. Unsurprisingly, we hear similar tunes from Clinton's running mate, Virginia Senator Tim Kaine.
Both candidates have strongly opposed the idea of privatizing Social Security in any way. Privatization would allow Americans to apportion a percentage of their benefits to be invested as they see fit. This would allow workers to buy assets like stocks in an effort to outpace the returns of the OASDI, which invests primarily in special-issue bonds earning around 3%.
Allowing Americans, some of whom have little financial understanding, to invest their hard-earned benefits could prove disastrous. Likewise, lower-income Americans may take unnecessary risks in an effort to "catch up" to the middle class. That's why neither Clinton nor Kaine would support any form of Social Security privatization.
The Democratic duo also supports raising the earnings payroll tax cap. The way Social Security payroll taxes are currently set up, every dollar up to $118,500 is taxed at 12.4% (as of 2016). Workers and their employers split this tax down the middle, paying 6.2% each, while self-employed persons pay all 12.4%. Any income earned beyond $118,500 is free from Social Security taxation. Some people believe this is an unfair advantage for upper-income earners, as around nine in 10 Americans will be subject to the payroll tax on every cent they earn for the year.
Though Clinton and Kaine have not decided on a new payroll tax cap, they both favor making the rich pay more into the system. Clinton was quoted in an Associated Press article in 2014 as suggesting that anything above $200,000 could be subject to payroll tax, while earnings between $118,500 and $200,000 could be exempt. In any case, though the numbers are fluid, Kaine and Clinton agree that the wealthy should pay more.
Not so fast! Here's where Kaine differs from Clinton
However, Clinton's running mate is not a mirror image of her views. In fact, Kaine and Clinton have one notable difference when it comes to fixing Social Security's woes.
Clinton hasn't just promised to keep Social Security steady for our nation's seniors; she has pledged to expand benefits for them. Kaine, on the other hand, says on his website, "As we negotiate a solution to our budget challenges, everything must be on the table, including spending cuts, revenue and entitlement reforms," as noted by Time.
Time "presumed" that entitlement reforms could take the shape of raising the Social Security retirement age. Raising the full retirement age would encourage people to work longer, providing more payroll tax revenue for the program. It could also lead seniors to delay their benefits, which would boost their eventual monthly payout. To be clear, we don't know that Kaine supports such a measure, but it seems he would not immediately dismiss it, as he would privatization.
Clinton, on the other hand, vehemently opposes raising the Social Security retirement age. During the MSNBC/Telemundo Democratic town hall in Las Vegas this past February, here's how Clinton responded to a question about raising the retirement age within the next 10 years:
No. And I'll tell you why. Right now if you look at who draws Social Security for the longest time, people who have worked hard for many years, people who are often really broken down by physical labor or the repetitive labor that they've done. Their lifespan is much lower than the lifespan of people like you and me who had a different sort of life, made our monies different ways, didn't have to work that hard. So right now the average death age for a lot of Americans and Latinos and African-Americans is lower than the average death age of whites. And that's lower still than the age of people who are affluent and well-educated. So raising the retirement age would very well eliminate a lot of the hardworking people from getting much Social Security at all. I will not do that.
What you should watch for
What you as a worker or retiree should be keeping an eye on -- regardless of your political affiliation -- is how Clinton's and Kaine's Social Security ideologies meld in the coming weeks. Rarely do running mates have identical views, so witnessing how Clinton and Kaine might budge in either direction could tell you a lot about what seniors have to gain or lose with a Clinton/Kaine presidency.
We should learn much more in the coming weeks, as Social Security is expected to remain a crucial topic in this election cycle.