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Social Security 2016: Cruz vs. Rubio

By Matthew Frankel, CFP® - Feb 13, 2016 at 2:41PM

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These two leading candidates have different ideas on how to save Social Security. Here's what you need to know...

Photo: FDR Presidential Library & Museum

As I wrote in another recent article, the 2016 Republican presidential candidates have a variety of different ideas when it comes to fixing Social Security, mostly consisting of some combination of tax cuts, benefit reductions, or increases to the retirement age. Since we have a pretty clear picture of who the leading candidates are at this point, let's take a closer look at the Social Security plans of Senators Ted Cruz and Marco Rubio, two of the top three candidates in most recent polls.

A lot of common ground
Both candidates' plans have a few things in common. Neither wants to make any changes to Social Security benefits for current and soon-to-be retirees, which is generally defined as those individuals over 55 years old.

For the rest of us, both Cruz and Rubio want to increase Social Security's solvency by gradually increasing the full retirement age. Cruz has specifically said he'd like to make 70 the new full retirement age, which would take care of 25% of the current shortfall, according to a report by the National Academy of Social Insurance and Greenwald and Associates.

Also, both want to change the way benefit increases are calculated. Cruz wants to change the rate of increases to match inflation, while Rubio would like to reduce benefit growth, particularly for high-income seniors.

Finally, both candidates want to encourage people to save for their own retirement. Cruz and Rubio would both like to eliminate taxes on capital gains, dividends, and interest income, which would make it easier for retirees to live off their investments.

Cruz wants to reduce Social Security benefits and give more personal control
Certainly the more radical plan of the two, Cruz is calling for the payroll tax to be eliminated entirely, with Social Security and Medicare to be funded entirely through his simplified 10% flat tax plan. Cruz's campaign website says that the vast majority of American families end up paying more in payroll taxes than income taxes anyway. So, he seems to believe it makes more sense to just combine the two.

In addition, Cruz wants to allow workers to invest a portion of the tax collected from them in a personal retirement savings account, which they own and control, and could potentially pass on to heirs.

Rubio wants to increase Social Security for millions of people
Under Senator Rubio's plan, a major priority would be incentivizing older Americans to work longer, which will not only strengthen the economy, but will put more money in seniors' pockets. First, while the payroll tax would remain, it would be eliminated for workers over age 65, resulting in bigger paychecks. This would mean that older workers would keep an additional 6.2% of their income, up to $118,500 in wages.

Also, Rubio wants to eliminate the retirement earnings test, which reduces Social Security benefits for seniors who earn more than $15,720 per year and have not yet reached full retirement age. According to Rubio, these benefit reductions discourage seniors from working. Under the new plan, a 62 year old could file for Social Security benefits if that's what they want to do, and then receive a full paycheck and Social Security check.

Finally, unlike many republicans, Rubio actually wants to increase Social Security benefits for low-income retirees, by raising the minimum benefit amount and strengthening the program for the seniors who need it most.

To sum it up
Since I'm sure many readers are wondering where he is in this discussion, let me briefly mention Donald Trump. I do realize Donald Trump is leading in many polls, but his campaign is yet to release specific Social Security plans, other than to say that the shortfall could potentially be taken care of if we simply create higher GDP growth.

Senators Cruz and Rubio have rather different views on the best way to fix Social Security, but the general theme is not that different -- lower taxes, higher retirement age, and making it easier for seniors to save for their own retirement, thereby reducing dependence on the system.

There's one important thing to keep in mind here. Even after getting elected, history says it'll be an uphill battle for any of these candidates before any Social Security reforms actually take place. After all, President George W. Bush wanted to allow a portion of SS taxes to be invested in private accounts, similar to Cruz's plan, but none of his reforms went anywhere in Congress. Whichever candidate you prefer, it's important that you take any plans to fix Social Security with a grain of salt.

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