We may still be over 17 months away from the 2020 presidential election, but political "punches" are already being thrown between America's two political parties, and in some instances, within them. With President Trump the likely candidate to gain the Republican nomination for the Oval Office, the question becomes which of the close to two dozen Democrats who have declared, or are expected to declare, for the presidency will oppose Trump?
Everything you need to know about Bernie Sanders' approach to fixing Social Security
Continue Reading Below
While that's something that'll be settled on the campaign trail in due time, one of the more popular Democrats, at least among the public, is Independent Sen. Bernie Sanders from Vermont. Sanders was one of the final contenders for the Democratic presidential nomination in 2016, losing out to Hillary Clinton, and has thrown his hat into the ring again.
Sanders, who has plans to tackle of number of issues, should he win the presidency, has perhaps been most impassioned about his fight to strengthen Social Security. As a reminder, 63 million Americans are currently receiving a Social Security benefit check each month, with 90% of working Americans aged 21 to 64 covered in the event of a long-term disability and 96% of adults aged 20 to 49 with young children and/or a surviving spouse covered by survivors insurance.
Where exactly does Bernie Sanders stand on Social Security? Let's take a closer look.
1. Sanders doesn't believe Social Security is going bankrupt
To begin with, Sanders' opposes the notion that Social Security is going bankrupt -- and he's 100% correct. One of the longest-running myths about the Social Security program is that demographic changes, and the eventual depletion of its $2.9 trillion in asset reserve if Congress fails to act, would cause Social Security's insolvency. But this isn't the case.
The reality is that Social Security will continue to generate healthy amounts of revenue from its 12.4% payroll tax on earned income and from the taxation of Social Security benefits for recipients and couples receiving payouts who earn over a select income threshold. While the revenue generated may not be enough to support the existing payout schedule over, say, the next 75 years, this doesn't mean insolvency. It could lead to a reduction in benefits for future generations of retirees, but certainly not the bankruptcy of Social Security.
2. He rejects any proposal of privatization
Social Security has seen numerous proposals to fix the program come and go over the years. One vehemently opposed by Sanders is the idea of privatizing Social Security to any degree. By privatizing, I mean setting aside a portion of your payroll taxes paid into a separate account that would allow you to invest these earnings as you see fit.
Sanders rejected the idea of privatization, which really gained notoriety in the mid-2000's as a proposal of then-President George W. Bush, on the grounds that it isn't a solution to the federal government's growing deficit, which is again correct.
An additional concern about privatization is that financial literacy in the U.S. is poor, meaning lower-income individuals may get too risky with their investment tactics and compromise what money has been set aside for their golden years by the program.
3. He opposes the core Republican proposal of raising the full retirement age
One of the core proposals to fix Social Security from the GOP is the idea of gradually raising the full retirement age. Your full retirement age is the age at which the Social Security Administration deems you eligible to receive 100% of your monthly payout, as determined by your birth year. It's currently set to peak at age 67 in 2022 for those folks born in 1960 or later. Some members of the Republican Party have suggested increasing the full retirement age to 70.
Sanders opposes increasing the gradual increase to the full retirement age, because it's a means to reduce benefits for future generations of retirees. Although it protects existing retirees and pre-retirees, workers who'll qualify for a retirement benefit decades down the road will either have to wait longer to be paid in full or accept a steeper reduction to their monthly payout if claiming early.
4. Sanders has voted against lowering the upper tier of the taxation of Social Security benefits
It's also worth pointing out that, in 2000, Sanders voted against a Republican-introduced measure that would have reduced the taxation of Social Security benefits on the well-to-do.
Currently, a single beneficiary whose modified adjusted gross income (MAGI) plus one-half of benefits exceeds $25,000, or $32,000 for a couple filing jointly, can have up to 50% of their benefits taxed at ordinary federal income-tax rates. A second tier also exists that allows up to 85% of benefits to be taxed for single beneficiaries whose MAGI plus one-half of benefits exceeds $34,000, or $44,000 for couples filing jointly.
The proposal in question would have eliminated the 85% tier and simply gone back to the way things were between 1984 and 1993, where going over the earnings threshold meant that up to 50% of benefits could be taxed. Viewing this as regressive, Sanders voted against it.
5. His focus is on lowering elderly and disabled poverty rates
To be clear, Sanders wants to increase Social Security benefits for everyone. And by everyone, I mean every single person who'd receive a benefit from the program (that includes the wealthy). But if his focus were truly narrowed down, he's specifically fighting to reduce elderly and disability poverty rates.
In Sanders' 2016 book, Our Revolution, the senator had this to say about protecting the elderly and disabled:
6. The senator wants minimum benefits for low-income workers increased
To build on the previous point, Sanders has made it clear that he wants to increase the benefits that lifetime low-income workers will receive so that they'll be higher than the national poverty level.
In February, Sanders reintroduced the Social Security Expansion Act for a third time, and chief among its many provisions is a means to make benefit collection easier for lifetime low-wage workers. A new formula for calculating benefits for low-wage workers with at least 11 years of qualifying participation would potentially pull millions of elderly Americans out of poverty.
7. Sanders favors the CPI-E as the COLA tether
Bernie Sanders has also resisted the Republican push toward a new inflationary tether for Social Security. Though both parties agree that the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is flawed, the GOP favors the Chained CPI, which takes into account the idea of substitution bias. If the Chained CPI were implemented, it would probably result in lower cost-of-living adjustments (COLA) for beneficiaries over time, which, in Sanders' view, is a sneaky way of cutting lifetime benefits.
Instead, the Vermont senator proposes switching from the CPI-W to the Consumer Price Index for the Elderly (CPI-E). As the name implies, the CPI-E would only factor in expenditures for households of persons aged 62 and older. In doing so, important expenditures, such as housing and medical care, would gain more accurate representation in the program's annual COLA calculation.
8. Sanders wants the rich to pay their fair share
You're probably wondering: "If Sanders is expanding benefits for everyone, how does he plan to pay for it?" The simple answer... make the rich open their wallets.
The 12.4% payroll tax, which was responsible for more than 88% of the $1.003 trillion Social Security generated in revenue last year, is applicable to all earned income between $0.01 and $132,900 in 2019. This means that more than 90% of the population making less than $132,900 in salary and wages this year will pay into the system with every dollar they mean. Meanwhile, well-to-do workers with earnings above $132,900 will have any income above this amount exempted from the payroll tax. In 2016, some $1.2 trillion in earned income escaped the payroll tax.
Per Sanders' latest proposal in February, he would create a doughnut hole between the cap of $132,900 and $250,000 where earned income would remain exempt, then reinstate the 12.4% payroll tax on earned income above $250,000. This would raise sufficient capital to extend Social Security's solvency for decades. Of course, as with all Social Security solutions, it's not perfect.
9. He's also coming after the investment income of the wealthy
On top of hitting the wealthy with a higher payroll tax on earned income, Sanders wants to go after some of the income that isn't "earned" and is escaping the system. Namely, investment income, which is currently not counted as earned income and is therefore exempt from the payroll tax.
When the Affordable Care Act was signed into law, one of its many provisions was the introduction of the Net Investment Income Tax, or NIIT. The NIIT imposed a 3.8% surtax atop net investment income when the individual in question topped $200,000 in MAGI ($250,000 for a couple). Sanders proposes an additional 6.2% tax be added to the NIIT to help improve Social Security's solvency and expand benefits, thereby bringing the total NIIT surtax to 10%.
10. He wants to restore college-age student benefits
Last, but not least, Bernie has also championed the idea of extending benefit eligibility for children who are full-time students.
When the Amendments of 1983 were passed by the Reagan administration, the last major overhaul of the Social Security program, it removed the ability for post-secondary students to receive benefits. Sanders wants to restore those benefits, thereby allowing the college students of disabled or deceased workers to receive benefits up to age 22. Currently, these benefits are extended to children up until the age of 18 or high school students up to the age of 19.
And that, folks, tells you everything you need to know about Democratic presidential candidate Bernie Sanders and his views on America's most important social program.
The $16,728 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.