Background on Social Security

• The "Third Rail"
• Who does the money go to?
• Where's the money come from?
• Topics from 2020 and earlier:
• Social Security Tax Deferral
• Social Security Entitlement
• Medicare Part A/B/C/D
• Payroll Cap
• The retirement age
• The Trust Fund
• Social Security Investment
• Medicare and Medicaid
• Social Security Buzzwords

The "Third Rail"

"Tinkering" means that presidents and Congress can change the rate of increase of benefits, but not cut benefits. And it means they can change the details of who pays into the system, but people can't opt out of the system entirely. Former V.P. Mike Pence suggested during the Republican primaries that some people might partially opt out of Social Security -- that policy felt like an anachronism ni 2023, a retread of a decades-outdated idea.

DOGE Secretary-designee Vivek Ramaswamy further suggested during the Republican primaries that the Trust Fund could be invested in the stock market. In theory, that would affect neither who paid in nor who received benefits, but would increase the total value of the Trust Fund to ensure its availability for future generations. That policy too, is a retread of a decades-outdated idea, last attempted by President Clinton in the 1990s. Yes, investing in the stock market would likely gain value, but it would benefit the selected corporations over others, and is risky -- hence even pro-corporate elected officials, including Vice-President-elect JD Vance, oppose a "stock market privatization" policy.

Presidential contenders' views:

• JD Vance (R-OH): No cuts; privatizing social security is a bad idea (Jul 2024)
• Donald Trump (R-FL): Cut waste and fraud, but don't cut benefits (Mar 2024)
• Ron DeSantis (R-FL): A promise made will be a promise kept (Jan 2024)
• Robert F. Kennedy Jr. (I-NY): Protect Social Security; needs more study (Jun 2023)
• Mike Pence (R-IN): Let younger Americans invest a portion of their payroll tax (Jun 2023)
• Vivek Ramaswamy (R-OH): Let seniors work; invest Trust Fund in diversified portfolio (May 2023)
• Joe Biden (D-DE): Some Republicans want to cut Social Security and Medicare (Feb 2023)
• Joe Biden (D-DE): Public commitment from both parties: no cuts to entitlements (Feb 2023)
• Donald Trump (R-FL): Never cut Social Security; payroll tax cut won't affect it (Sep 2020)
• Bernie Sanders (I-VT): Incremental adjustments ok, but no Social Security cuts (Mar 2020)
• Pres. Ronald Reagan (R-CA): 1983: Ironclad commitment to Social Security (Dec 2011)
• Pres. George W. Bush (R-TX): Spent political capital addressing "third rail" (Nov 2010)
• Pres. Bill Clinton (R-TX): Proposed a small portion of Trust Fund be in mutual funds (June 2004)
• Pres. Ronald Reagan (R-CA): Suggested in 1975 to make social security voluntary (Jul 1987)

Who does the money go to?

• The retirement age (when you get full Social Security benefits) has risen from age 65 to age 67, and some would like to raise that to age 70. That would preserve the Trust Fund without cutting anyone's benefits -- just delaying benefits isn't quite "the third rail."
• The COLA increases (cost-of-living adjustments) are intended to keep up with inflation; exactly how to do so during inflationary times is a challenge and an ongoing policy debate.
• The income tax applies to some Social Security benefit checks -- about 48% of recipients pay income tax on their benefits. Exactly how to apply income tax is another ongoing area for policy debate.

Presidential contenders' views:

• JD Vance (R-OH): Problems with the trust fund may be overstated (Jul 2024)
• Kamala Harris (D-CA): COLA adjustments and benefit boost for seniors (Jul 2024)
• Donald Trump (R-FL): Seniors should not pay tax on Social Security benefits (Jul 2024)
• Joe Biden (D-DE): If Congress tries to raise retirement age, I will stop you (Mar 2024)
• Chris Christie (R-NJ): Rich people should not be collecting Social Security (Nov 2023)
• Doug Burgum (R-ND): Permanently eliminated state income tax on Social Security (Feb 2022)

Where's the money come from?

• The Trust Fund has always been self-funding -- all contributions are from individual contributions -- but Congress could change that (as Rep. Gabbard suggests). As of 2024, the Trust Fund has about $2.9 trillion.
• The Payroll Tax Limit is set at $168,600 in 2024, increasing to $176,100 in 2025. If you earn over that payroll tax limit, you stop paying more into the Trust Fund -- in other words, the maximum contribution is 6.2% x $168,600, which is $10,453.20 per year. This makes the system "regressive" because lower-income earners pay a higher percentage than higher-income earners. Congress could change that too -- by raising the cap, as V.P. Harris suggests.
• The workforce size is currently about 183 million workers, who pay in $1.2 trillion annually to the Trust Fund. Increasing the number of contributors would increase the Trust Fund balance, which V.P.-elect Vance suggests.

Presidential contenders' views:

• Kamala Harris (D-CA): Strengthen for the long haul by taxing millionaires (Sep 2024)
• JD Vance (R-OH): Get more people in labor force, to bolster Social Security (Jul 2024)
• Kamala Harris (D-CA): Social Security Expansion: 12.4% on earnings over $250,000 (Jul 2024)
• Joe Biden (D-DE): Never let Republicans cut Social Security (Jul 2024)
• Kamala Harris (D-CA): End payroll tax loopholes: increase investment tax (Jul 2024)
• Donald Trump (R-FL): Migrants coming in will destroy Medicare & Social Security (Jun 2024)
• Donald Trump (R-FL): FactCheck: No, undocumented immigrants can't collect benefits (Jun 2024)
• Joe Biden (D-DE): Won't allow Social Security or Medicare to be taken away (Feb 2023)
• Tulsi Gabbard (I-HI): Take money for Social Security from military & tax giveaways (Nov 2019)

Social Security Tax Deferral

• Payroll Tax Cut: Here's how [Trump's proposed pandemic-stimulus] payroll tax cut works: (Forbes)
  • This is a temporary payroll tax cut from September 1, 2020 until December 31, 2020.
  • During this period, certain employees will not have to pay a payroll tax, which is 6.2% for Social Security.
  • The cut applies to employees who earn less than $4,000, before taxes bi-weekly. This equates to $104,000 per year.
  • Employees will not be responsible for any penalties or late fees on the amount deferred.
  • Trump directed Treasury Secretary Steven Mnuchin to explore ways to forgive the taxes permanently.
  • Employers will be responsible to pay the deferred payroll tax between January 1, 2021 and April 30, 2021. The payroll tax 'cut' is effectively a deferral.
• PRO-Payroll Tax Cut: The Executive Order does not affect Social Security's Trust Funds, as the taxes are only deferred. The Social Security Chief Actuary has confirmed that no one has proposed legislation to zero-out Social Security payroll taxes. (House GOP)
• ANTI-Payroll Tax Cut: One of the issues employers are currently grappling with is the fact that they are on the hook for penalties, interest and "additions to tax" starting on May 1 if they are unable to withhold and pay the deferred taxes from workers' paychecks. Questions still remain on how employers would recoup the funds from workers who leave before the year is over. (CNBC)

Social Security Investment

• Social Security Trust Fund: At the end of 20192019, Social Security's reserves were $2.9 trillion, having increased by $2 billion. The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay full benefits on a timely basis until 2034, unchanged from last year. The Disability Insurance (DI) Trust Fund is now projected to be able to pay full benefits until 2065, 13 years later than indicated in last year's report. (SSA)
• Social Security Budget: Budget projections for 2020: (CBO)
  • Outlays: $6.6 trillion
  • Revenues: $3.3 trillion
  • Deficit: $3.3 trillion
  • Debt held by the public: $20.3 trillion

• TRUMP: Pay off debt; put $3T interest savings into Trust Fund (Jul 2000)
• BIDEN: 6.2% FICA tax on all earnings over $400,000 (Feb 2020)
• PENCE: Reform Social Security to ensure its solvency (Sep 2010)
• HARRIS: Trump deficits will endanger Social Security (Jul 2019)

Social Security Entitlement

• Entitlements: A Federal program that requires payments to any person or unit of government that meets the eligibility criteria established by law. Entitlements constitute a binding obligation on the part of the Federal Government, and eligible recipients have legal recourse if the obligation is not fulfilled. (Senate)
  [Ed.: Republicans favor either cutting or putting restrictions on entitlements, such as raising the retirement age or means testing. Democrats favor protecting and expanding entitlements.]
• PRO-Entitlement Cuts: White House chief economic advisor Larry Kudlow said it will "probably" look at "larger entitlements" next year. Entitlement reform generally refers to changes or cuts to large government social programs such as Social Security, Medicare, Medicaid or food stamps. (CNBC)
• ANTI-Entitlement Cuts: A report released by the Democratic Joint Economic Committee analyzing the budget resolution that House Republicans proposed shows that proposed cuts to Medicaid, Social Security, and the Affordable Care Act could result in significant income losses to 40% of Americans. (Mother Jones)
• Ponzi scheme : A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. (Investopedia)
  [Ed.: The Social Security Trust Fund is called a "Ponzi scheme" because it makes payments to older recipients by claiming future payments from younger recipients, who will in turn get many payments from people not born yet.]

• TRUMP: Social Security isn't an "entitlement"; it's honoring a deal (Dec 2011)
• BIDEN: Freeze entitlements; don't favor special interests (Aug 2018)
• PENCE: Cutting Social Security should be on the table (Apr 2014)
• HARRIS: Oppose entitlement cuts; strengthen these safety nets (Aug 2016)
• Mike BLOOMBERG: 2009: Called Social Security a "Ponzi scheme" (Feb 2020)
• NEWS: Latest statements on Entitlement Reform from presidential candidates and political pundits

Medicare Part A/B/C/D

• Medicare Parts: (MRC): There are four parts of Medicare: Part A, Part B, Part C, and Part D.
  • Part A provides inpatient/hospital coverage.
  • Part B provides outpatient/medical coverage.
  • Part C you decide to get your Medicare benefits from a Medicare Advantage Plan.
  • Part D provides prescription drug coverage.

• TRUMP: Cannot change Medicare or Social Security and still win elections (Mar 2013)
• BIDEN: Protect Social Security & Medicare: "You have my word" (Aug 2020)
• PENCE: Voted NO on requiring negotiated Rx prices for Medicare part D (Jan 2007)
• HARRIS: Medicare-for-All with 10-year transition and private option (Jul 2019)
• NEWS: Latest statements on Medicare Reform from presidential candidates and political pundits

Payroll Cap

The payroll cap (technically called the Social Security Wage Base, SSWB) sets a limit in 2016 of $118,500 to which the FICA tax applies. People earning above that cap pay zero additional tax, hence opponents call this a "regressive tax" (low earners pay a higher rate than high earners). During the Obama administration, the cap was raised from $102,000 in 2008. Raising the payroll cap to $240,000 would eliminate 82% of the Social Security Trust Fund long-term deficit.

Social Security retirement age

Increasing the retirement age would increase the Social Security Trust Fund by delaying the age at which benefits could be received. Full retirement age had been 65 for many years. However, beginning with people born in 1938 or later, that age gradually increases. For those born in 1960 or afterwards...
• At age 62, retirees will get 70% of monthly benefits.
• At age 65, retirees will get 86.7% of monthly benefits.
• At age 67, retirees will get 100% (full retirement age for full benefits).

Social Security Trust Fund

The Trust Fund is the government's means of saving up for the expected increase in retirement in coming decades. The primary policy question is where to invest the fund, and whether to increase the total fund by adding money from the budget surplus.
• The Democratic plan is to have the federal government continue to control the investment (which implies investing in Treasury Bills, which means lending to the National Debt).
• The Republican plan is to have individually controlled retirement investment accounts (which implies investment in the Stock Market, Bond Market, and Money market)
• Alternative plans are to have government-controlled investments in the stock market or other private markets.

 $1.0 trillion      Total amount currently in the Trust Fund   (2012)
 $3.0 trillion      Estimated amount needed by peak year       (2015)
 $0.5 trillion      Expected new budget deficit                (2013)
 $3.8 trillion      Total amount of most recent federal budget (2013)
$14.2 trillion      Total amount of the federal National Debt  (2011)
$13.4 trillion      Total market capitalization of the NYSE    (2011)

 $0.6 trillion      Total amount previously in the Trust Fund  (1999)
 $3.0 trillion      Estimated amount needed by peak year       (2015)
 $2.9 trillion      Expected total budget surplus for years 2000-2009
 $1.8 trillion      Total amount of most recent federal budget (2000)
 $5.6 trillion      Total amount of the federal National Debt  (1998)
$11.6 trillion      Total market capitalization of the NYSE    (1999)

• The �Lockbox Bill� aims to protect the future Social Security surplus by removing it from the control of federal budget makers.
• The vote in Congress was 416-12 in favor of the bill.
• It would require a �super-majority� vote on any bill that would add to the budget deficit, which implies borrowing from the Social Security Trust Fund.

• Individual Retirement Accounts (IRAs) allow saving $2,000 per year tax-free, to be withdrawn beginning between ages 59 and 71.
• Keough Plans for self-employed people allow saving $30,000 per year tax-free, to be withdrawn beginning at age 59.
• Salary Reduction Simplified Employee Pension Plans (SAR SEPs), allow investing $6,000 per year tax-free in stocks, bonds, mutual funds, or precious metals.
• 401(k) company-sponsored retirement plans allow investing $30,000 per year tax-free in any investment vehicle, including real estate and insurance.

• Medicare and Medicaid will become insolvent under current estimates by 2015 (1999 budget discussions may push that to 2025).
• There were 39 million Medicare beneficiaries in 1998; that number is expected to rise along with Social Security retirement figures.
• Senior Drug coverage is currently $24-$44 per month insurance premium to cover $1,000-$2,500 per year in drug costs.
• Medicare deductible on tax returns is currently $100 per year; also expected to rise in current negotiations.
• This section covers financial/budgetary issues about Medicare and Medicaid; also see our healthcare section.

• The biggest component of the Social Security debate is whether people should be allowed to privately invest their retirement money. Fully doing so has the effect of replacing the Social Security system with a federally-run retirement investment plan.
• Liberals and populists generally oppose privatization of Social Security. Look for buzzwords like "risky" to describe the stock market component, or "maintain confidence in the Trust Fund" to describe the federally-managed system.
• Moderate liberals and populists generally favor some components of privatization and pay lip-service to the concept of the stock market. Look for buzzwords like "government investment in the stock market," which means maintaining complete federal control of Social Security while attempting to reap the greater profit of private investment.
• Conservatives and libertarians generally favor privatization. Look for buzzwords like "personal choice" or "individual control" of one's retirement account (to contrast the lack of individualization of the current Social Security system).
• Moderate conservatives and libertarians favor privatizing some components while maintaining federal control of the overall system. Look for terms like "increase IRAs" (individual retirement accounts in addition to Social Security accounts); or "Remove the Earnings Test," which means allowing seniors to earn income without diminishing their Social Security payments.
• Moderates from both the right and left generally support Social Security reform which increase the value of the Trust Fund while still providing benefits to all citizens. Look for terms such as "increase the retirement age," which would increase the Trust Fund by delaying the age at which benefits could be received.
• Some centrists from both the right and the left support reforms to better account for the Trust Fund, generally by taking it "off-budget" or putting it in a "Lock Box." That refers to the accounting method for Social Security, which does not maintain a separate bottom-line for the Trust Fund but instead assigns its surplus or deficit to general treasury funds. Accounting separately for Social Security would disallow political machinations of the surplus and, in this view, would enhance the future long-term survival of Social Security.
• NEWS: Latest statements on Privatization from presidential candidates and political pundits