The road to the White House in 2016 runs through Social Security. Image: Wikimedia Commons.
Social Security has always been a difficult political issue, but in the past, most politicians have decided that arguing for changes to the system is too dangerous and runs the risk of alienating too many voters. As we approach the 2016 election year, though, a host of candidates have been looking at a wide range of proposals. Moreover, the breadth of their provisions is unusually wide, making it even less likely than usual that any sort of bipartisan compromise will occur. Let's take a closer look at the positions of both sides to understand why Social Security is even more contentious than usual.
Social Security: More vs. less Until recently, lawmakers from both parties recognized the long-term financial challenges that Social Security faces and generally agreed that proposals to reduce the growth of Social Security payments were most appropriate. Even President Obama supported measures early in his presidency that would have slowed the rate of cost-of-living increases for Social Security recipients.
Yet Democrats have now moved away from the position that Social Security needs to shrink, instead arguing that the program should be expanded. Emphasizing the value Social Security has in fighting poverty among senior citizens, lawmakers like Sen. Elizabeth Warren have argued for larger benefits for some recipients, and other members of the party have proposed specific changes to the monthly benefit formula and other key Social Security provisions.
This new disagreement takes the two parties even further apart in terms of ideology, making the debate even more contentious. Moreover, things get even more heated when you consider the way that members of both parties propose dealing with funding issues.
The many ways to bridge the Social Security gapIf you believe that Social Security has a financial problem, then there are two general ways to fix it. You can either make changes that will reduce the benefits that Social Security pays, or you can increases the taxes and other sources of revenue that provide the money that goes to Social Security recipients.
So far, though, most of the big stands on this issue have followed traditional party lines on this score. Democrats who are looking for ways to expand benefits often point to the wage base limit on Social Security payroll taxes, which currently leaves earnings about $118,500 untaxed for Social Security purposes. Opponents of higher wage base limits argue that the number of people affected is too small to make a huge difference to Social Security's finances, and many wealthy individuals have access to existing tax strategies that can reduce liability for payroll taxes substantially. Closing all the loopholes involved would be extremely difficult, and imposing a 6.2 percentage point tax increase on the wealthy would certainly give them an incentive to find ways to avoid the tax in any way possible.
Meanwhile, many of those who would likely prefer to rein in Social Security have kept relatively quiet, but some have pointed to other methods for cutting benefits. Increases in the full retirement age are never popular, but some Republicans have taken the gamble of adopting that position as part of broader programs that implement other cost-cutting measures as well. COLA calculation provisions are an easy way to produce financial savings without producing as immediately measurable a hit as other methods.
One idea that would seem to have at least some potential for a bipartisan solution involves means-testing benefits. Proposals that would cut benefits for high-income taxpayers in retirement have come from unexpected sources in the Republican Party, which would seem to be contrary to the GOP's reputation. Yet even some Democrats have opposed means-testing, in the fear that if the rich no longer have any skin in the Social Security game, they'll be even more adamant about making future cuts.
With the Presidential campaign off to an early start this cycle, arguing over key issues like Social Security will likely continue to hit the spotlight from time to time. Unfortunately, the current level of political rhetoric makes it clear that the two major parties are further apart than usual on this key issue, and that makes the likelihood of finding a lasting solution to Social Security's long-term challenges uncomfortably small as 2016 approaches.
The article Will the Social Security Mess Ever Get Solved? originally appeared on Fool.com.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.