Hillary Clinton and Donald Trump Share This Social Security Similarity

By Markets Fool.com


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In less than two months American voters will head to the polls to decide whether Democratic nominee Hillary Clinton or Republican nominee Donald Trump will become the 45th President of the United States.

Regardless of the outcome, it'll be historic. We're either going to witness the first female president in our country's history, or we're going to watch a career businessman with no prior political background head into the Oval Office.

Social Security is likely to be a defining issue this election season

But just because Clinton and Trump have turned traditional election politics on its head doesn't mean that historically important issues are falling by the wayside. One critical issue that has been, and continues to be, important for all working Americans is the future of Social Security.

The Social Security program has been paying out benefits to retired workers, the disabled, and survivors of deceased workers for more than 75 years. It's a program that helps provide a financial foundation for more than 40 million retired workers each and every month and this figure is set to grow substantially as baby boomers continue to head into retirement.

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Unfortunately, the retirement of baby boomers is one reason why the Social Security program is on an unsustainable path. The steady outflow of boomers from the workforce coupled with lengthening life expectancies is weighing on the Old-Age, Survivors, and Disability Insurance Trust (OASDI). By 2034, according to the latest report from the Social Security Board of Trustees, the OASDI will have depleted its $2.8 trillion in spare cash, possibly necessitating an across-the-board benefits cut of up to 21%. With some 6 in 10 current retirees reliant on Social Security benefits to provide at least half of their monthly income, this isn't exactly a bright outlook.

This is where Capitol Hill comes into play. Lawmakers on Capitol Hill, along with the next president, will be tasked with finding an amicable solution with which to fix Social Security. Make no mistake, at least 15 possible solutions to fix the program to some varied degree currently exist. The big question is which path lawmakers will choose to ensure the long-term survival of Social Security.


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On this aspect of Social Security, Clinton and Trump agree

Traditionally, Republican and Democratic presidential candidates tend to clash on how best to solve Social Security's budget shortfall -- and in this election there are plenty of differences between how the candidates would choose to go about fixing the program (which we'll get to in a moment).

However, what's arguably the most surprising aspect of this election is that Clinton and Trump share one major similarity when it comes to Social Security policy: neither candidate has any intention of cutting benefits. This position aligns with the views of the American public, based on a March 2016 poll from Pew Research Center, which found that 71% of respondents believe Social Security benefits shouldn't be touched, while 26% suggest that benefit cuts should be considered.

Both Clinton and Trump have been unwavering in their belief that working Americans have earned their Social Security benefits and they should receive their full benefits without fear of having them cut. For Trump, that means breaking ties with some of his prior Republican presidential competitors, such as Jeb Bush and Chris Christie, who'd called for raising the full retirement age (FRA) of the program. The FRA is a dynamic number based on your birth year that determines when you're eligible for 100% of your benefits.

Of course, not cutting Social Security benefits is where Clinton's and Trump's similarities end.


Democratic presidential nominee Hillary Clinton. Image source: Disney-ABC Television Group via Flickr.

Hillary Clinton's take on Social Security

Clinton's goal isn't to keep Social Security on life support. Instead, she wants to expand benefits, especially for caregivers who are forced to spend time out of the workforce to take care of ailing family members or friends, and women who happen to be widows. She also plans to oppose any attempts to raise the retirement age, reduce cost-of-living adjustments, or partially privatize the program.

How does Clinton expect to expand benefits? Clinton's primary method of revenue generation would be to raise Social Security's payroll tax earnings cap, which is currently set at $118,500 in 2016. The payroll earnings tax cap ensures that all earned income up to $118,500 is taxed at 12.4%. If you're self-employed you'll pay the entirety of this tax, while as an employee of a company you'll usually split this tax down the middle with your employer. Most Americans make less than $118,500 a year in earned income, meaning they're paying payroll taxes on every cent they earn. Meanwhile, higher income folks are paying into the program on a smaller percentage of their income, since any income above and beyond $118,500 is free and clear of taxation from the Social Security program.

Clinton's solution? Consider removing the cap for earned income above $250,000. In other words, allow the current earnings tax cap of $118,500 to continue to increase with inflation on an annual basis, exempt earned income between the inflation-adjusted earnings tax cap and $250,000, and reinstitute the 12.4% tax on earned income above $250,000.

The good news is this plan would indeed generate more income for the OASDI. The downside is that it would only negate about 30% of the budgetary shortfall according to the Center for Retirement Research at Boston College. Furthermore, negating 30% of the budgetary shortfall only takes into account keeping benefits at the same levels they are today, not expanding them. In other words, there are clear questions about where the revenue will come from if Clinton pursues a plan of expanding benefits for seniors.


Republican presidential nominee Donald Trump. Image source: Disney-ABC Television Group via Flickr.

Donald's Trump's take on Social Security

Donald Trump's solution for Social Security has even more question marks than Clinton's because he's taken a pretty much hands-off approach.

Instead of facilitating changes to Social Security itself, Trump is angling to bolster U.S economic growth, claiming that the added revenue generated from a healthy economy will more than take care of Social Security's projected budgetary shortfall.

How will Trump achieve this goal? One of the foundations of Trump's proposals is his plan to simplify how we pay ordinary income taxes. Currently there are seven progressive income tax brackets ranging from a low of 10% to a high of 39.6%. Under Trump's tax plan we'd have just three tax brackets (12%, 25%, and 33%). If this sounds somewhat familiar, it's because this is the same tax reform plan that the Republican House has been trying to pass.

In addition to lower tax rates, which are presumed to put more money in the pockets of Americans, Trump wants to lower the corporate income tax rate from 35% to 15% to make America more globally competitive. Presumably, the extra income for businesses should allow for hiring, business expansion, and M&A activity, and may even attract foreign investment into the United States.

Additional reforms include repealing and replacing the Affordable Care Act, attacking fraud and waste at the federal level, and reforming immigration policies.

The concern with Trump's proposal is that it tends to benefit the rich more than any other working class, which could exacerbate the already high income inequality in the United States. Worse yet, Trump's policies could worsen the national debt, which means higher interest payments on our existing debt and potentially less money available for the Social Security program. Growing the U.S. economy quickly enough to counteract these negatives could prove nearly impossible.

Clearly something needs to be done to fix Social Security, but what that "something" will eventually be remains a mystery.

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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.

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