On Tuesday, vice presidential candidates Mike Pence, the running mate of Republican Party presidential nominee Donald Trump, and Tim Kaine, the running mate of Democratic Party presidential nominee Hillary Clinton, squared off in their lone head-to-head debate at Longwood University. As expected, the intensity of the debate was heightened, as the 2016 election is unlike anything like we've seen before.
The vice presidential candidates tackled a number of topics, including national security, the economy, and the trustworthiness of their running mates. However, one intriguing topic brought up during the VP debate centered on Social Security.
According to the Social Security Administration, 61% of all beneficiaries count on Social Security to provide at least half of their monthly income, and nine out of 10 respondents in a Gallup survey from 2015 noted that Social Security was a "major" or "minor" source of income. In other words, income from the social program provides a solid, and needed, financial foundation for seniors in retirement.
However, the Social Security program isn't itself on solid footing. The program is on track, based on the latest Social Security Trustees report, to burn through its $2.8 trillion in spare cash by 2034. If Congress fails to find a way to generate additional revenue for Social Security, an across-the-board benefits cut of up to 21% may be necessary to sustain payouts through the year 2090. The prospect of benefit cuts for new retirees and baby boomers with little to nothing in saving is downright terrifying. This is why Social Security has rightfully taken center stage in the 2016 elections, and on Tuesday with the vice presidential candidates.
The VP candidates' striking Social Security similarity with their running mates
Yet what was intriguing about the VP candidates' discussion of Social Security, and their opinions of how the other party's candidates would be bad for the program and/or the economy, is that they've shared a strikingly similar view on the future of Social Security with their running mates for a long time, not just since the election began.
Pence and Trump once supported privatization
For example, Kaine opined that Mike Pence and Donald Trump were angling to privatize Social Security. Privatizing Social Security would allow workers access to some, or all, of their Social Security benefits for the purpose of investing those benefits as they see fit. Currently, Social Security's spare cash is invested in special issue bonds and, to a far lesser extent, certificates of indebtedness, which are generating a low- to mid-single-digit percentage return. Allowing future beneficiaries to invest money within defined investment channels could allow for bigger returns, but it also opens the door for increased risk and possible losses, especially for lower-income beneficiaries who may be more willing to take risks.
Pence denied this claim during the debate and emphasized that Trump's and his personal opinion on Social Security is to stay the course and leave the program as is. Rather than making any changes directly to Social Security, Trump and Pence have emphasized ancillary changes, such as reforming the tax structure to lower ordinary income and corporate income taxes, and boosting the standard deduction for all taxpayers in order to ignite economic growth. Strong economic growth is believed to lead to wage growth, which should, in turn, increase payroll tax revenue.
However, both Trump and Pence share a storied history of supporting the privatization of Social Security, even if they no longer do now. Trump had this to say in his 2000 release of The America We Deserve:
The solution to the Great Social Security crisis couldn't be more obvious: Allow every American to dedicate some portion of their payroll taxes to a personal Social Security account that they could own and invest in stocks and bonds. Federal guidelines would make sure that your money is diversified, that it is invested in sound mutual funds or bond funds, and not in emu ranches. The national savings rate would soar and billions of dollars would be cycled from savings, to productive assets, to retirement money. And unlike the previous system, the assets in this retirement account could be left to one's heirs, used to start a business, or anything else one desires.
Likewise, during the presidency of George W. Bush, who'd called for a partial privatization of Social Security, Pence had argued that Bush's plan didn't go far enough.
As noted above, neither Pence nor Trump favors the idea of privatization for Social Security today, but it was certainly on the table more than a decade ago.
Kaine and Clinton have long supported raising the payroll tax earnings cap
On the other side of the aisle, during the VP debate, Pence accused Kaine and his running mate, Hillary Clinton, of attempting to increase taxes by $1 trillion, which includes reforming the Social Security payroll tax earnings cap.
As it stands in 2016, the payroll tax earnings cap cuts off at $118,500 in earned income. That means all earned income up to $118,500 is taxed at 12.4%. This 12.4% payroll tax is often split between you (6.2%) and your employer (6.2%), though self-employed people are required to pay the full 12.4%. The vast majority of Americans make less than $118,500 each year, meaning every cent they earn is taxable by the Social Security, while well-to-do Americans earning more than $118,500 are paying into Social Security on only part of their income, since any earned income beyond $118,500 is free and clear of taxation.
Clinton's and Kaine's views align in that both have been advocating for a higher payroll tax earnings cap for years in order to require wealthier Americans to pay more into the program. During Clinton's 2008 presidential campaign run, the Associated Press documented a town hall in Iowa where Clinton first proposed the idea of lifting the payroll tax earnings cap from $97,500 (at the time) to $200,000. Similarly, in the 2012 Virginia Senate debates, The Washington Post observed that Kaine said he wanted to lift the payroll tax cap to force wealthier people to pay more into the system.
Though neither Clinton nor Kaine has released a specific figure during the 2016 campaign, raising the payroll tax earnings cap to $250,000 is a figure some pundits have thrown around. Under such a proposal, workers would continue to pay the 12.4% payroll tax on earned income between $1 and $118,500. Earned income between $118,500 (or the inflation-adjusted payroll tax cap) and $250,000 would then be exempted, with the 12.4% payroll tax kicking back in on earned income above $250,000.
Though these VP candidates and their running mates have a storied history when it comes to Social Security, which plan remains the better alternative is still up for debate.