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September 30, 2008
Where the Candidates Stand on Social Security
Forget flag lapel pins or lipstick on pigs — let's tackle one of the real issues in the run-up to the presidential elections. Here's a primer on where McCain and Obama stand on Social Security and Medicare reform.
In 2008, more than 50 million Americans will receive nearly $614 billion in Social Security benefits. Nine out of 10 individuals age 65 and older receive Social Security benefits.
For years, the Social Security program has been taking in more in payroll taxes from existing workers than it needed to fund benefits. But that surplus is shrinking, and eventually the system won't be able to pay out all of the promised benefits it collects in payroll taxes.
The basic problem: the number of workers compared to retirees has begun to shrink, so there are fewer workers to support each retiree than there used to be.
The federal government will have to start paying back what it owes the Social Security trust fund in 2017 so the program can continue paying 100 percent of benefits, according to the Social Security and Medicare Boards of Trustees' 2008 annual report. If the system is left unchanged, shortfalls will grow larger with each passing year so that, by 2041, the Social Security trust fund will be exhausted and able to pay out only 78 percent of benefits promised to future retirees.
"Social Security could be brought into actuarial balance over the next 75 years in various ways, including an immediate increase of 14 percent in payroll tax revenues (from 12.4 percent to 14.1 percent) or an immediate reduction in benefits of 12 percent or some combination of the two," float the trustees. "Ensuring that the system is solvent on a sustainable basis beyond the next 75 years would require larger changes, because an aging population and increasing longevity cause the projected current-law OASDI [Old Age, Survivors and Disability Insurance] cash-flow deficits to be substantially larger after the 75-year projection period than they are on average during the period."
That is why both United States presidential contenders Barack Obama and John McCain are proposing dramatic changes to Social Security, taking on the financially fragile "third rail of American politics" that Congress and recent presidents have been unable to repair. The analogy to the electrified third rail on the subway systems has long been used to refer to Social Security in American politics: touch it and you're dead.
Earlier this month both candidates addressed the issue separately at AARP's annual "Life@50+" conference.
Aside from both candidates agreeing that adjustments to the Social Security formula are necessary and pledging to work across the political-party aisle to restore the program to fiscal health, each presidential contender is offering a different vision for solving the current and future financial problems of Social Security, which was signed into law 73 years ago.
Republican McCain has been less specific about how he would extend the program's solvency, compared with Democrat Obama. He has said he opposes increasing taxes even as he vowed to keep "all options" on the table. McCain said he remains open to personal accounts, also called private accounts, as options for younger people. "There may be a role for private investment accounts for younger workers as long as they are not a substitute for insuring the solvency of the system and does not affect the system," McCain said.
"Partial privatization" under McCain's reform proposal, according to the National Center for Policy Analysis (NCPA), would "provide younger workers the option of putting a portion of their earnings into personal savings accounts in return for reduced future benefits from the Social Security system."
"We're not going to privatize Social Security," McCain said, in the same speech emphasizing that his proposal for setting up individual investment accounts would be voluntary, giving young workers the option of setting up their own retirement accounts.
In 2005, President Bush pushed hard for a private-accounts plan, wanting to set up separate accounts for young and middle-aged workers, allowing them to invest in stocks and bonds rather than sending their Social Security payments to the government's trust fund. Under this concept, Social Security would resemble a 401(k) plan. Democrats, of course, were unified in killing the Bush plan.
Indeed, Obama has said he remains strongly opposed.
"Privatizing Social Security was a bad idea when George Bush proposed it, and it's a bad idea today," Obama said. "It would take the one rock-solid, guaranteed part of your retirement income and gamble it on the stock market." Moreover, the Democrat's fact sheet for seniors states, "Privatization tears the fabric of Social Security — the idea of mutual responsibility — by subjecting a secure retirement to the whims of the market, and that is not an acceptable way to strengthen this program."
"Obama does not support uncapping the full payroll tax of 12.4 percent rate," his Web site currently states. However, in the Sept. 6 AARP address, the Democratic nominee said he would shore up the system by raising taxes on higher earners. Specifically, in about a decade he'd start levying the Social Security payroll tax once income goes above $250,000 a year, charging about 2 percent to 4 percent of income for employees and employers combined. Whether that would be enough to close the entire gap remains unclear. Social Security payroll tax is currently capped at $102,000 in annual income.
For many of today's retirees, it's becoming increasingly difficult to balance threatened retirement funds and medical costs. "In 1935, the life expectancy of a 65-year-old was 12½ years," the official Social Security Web site points out. "Today it's 18 years."
Yet problems related to Medicare, the federally funded health care program for Americans aged 65+, are perhaps even more complicated. A major reason for this lies in the government having to find a way to slow spending on health care.
WiseGEEK sums up the political (and social) contention this way:
Medicare reform issues have plagued Congress for several years, and a reform bill with a prescription drug benefit was passed in 2003. Because of the changing needs of senior citizens and rising medical costs, this is an issue that Congress will probably continue to wrestle with for many more years. It is difficult to create a "one-plan-fits-all" system.
Both Republican and Democratic candidates vow to improve the quality of care, whether through "preserv[ing] the advancements in medical science" (McCain) or "protecting seniors from fraud" (Obama).
McCain's particular proposal on reforming Medicare is to lower premiums for seniors while also reducing the growth of spending on Medicare. Obama's proposal places emphasis on reducing waste in the Medicare system, including "eliminating subsidies to the private Insurance Medicare Advantage program."
"The financial difficulties facing Social Security and Medicare pose enormous challenges. The sooner these challenges are addressed, the more varied and less disruptive their solutions can be," states the Social Security and Medicare Boards of Trustees' 2008 annual report. "We urge the public to engage in informed discussion and policymakers to think creatively about the changing needs and preferences of working and retired Americans."
If you think you have a better idea for fixing Social Security and/or Medicare, you can find out by playing the Social Security Game, created by the American Academy of Actuaries. This online game lets you test out different benefit reductions and revenue increases and tracks how far each choice goes toward solving the problem. It also provides some insight into the pros and cons of potential fixes.
Resources
Social Security Basic Facts
Social Security Online, Aug. 20, 2008
Status of the Social Security and Medicare Programs
Social Security and Medicare Boards of Trustees, 2008
Social Security Reform and The Election
National Center for Policy Analysis, 2008
Reforming Washington to Regain the Trust of Taxpayers
JohnMcCain.com
Jobs for America: The McCain Economic Plan
JohnMcCain.com
McCain Speaks at Life@50+ Event
AARP, Sept. 6, 2008
Seniors & Social Security
BarackObama.com
Barack Obama: Helping America's Seniors
BarackObama.com
Obama Speaks at Life@50+ Event
AARP, Sept. 6, 2008
What is Social Security?
WiseGEEK.com
Additional
John McCain on Social Security
OnTheIssues.org
Barack Obama on Social Security
OnTheIssues.org
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6 CommentsSimply reduce illegal immigration that is feeding like a leech of the US taxpayer. You just have to look at the draining financial coffers of every state. California is one hell of an example, where their crippled budget was a meltdown of $11 billion dollars in welfare payments. The Democratic-Socialist-Reconquista assembly has generously allowed the millions of illegal aliens squatting in this state, to extract dollars meant for taxpayers.
HELP YOUR POLICE!
Illegal Immigration is rapidly becoming a urgent flash-point issue, because the this lawbreaking population is out of control. Cities and communities have become violators of immigration law, getting duly labeled as 'Sanctuary cities or even states'? This is no longer isolated communities whose Governors, Mayors and elected officials, who have sold America to the Special interest lobby.
The majority of Politicians have refused to approach this issues, because it has become a grave concern to hard-hit taxpayers. When uncensored it shows the spread of illegal immigrant crime, devastating economic damage to our welfare programs. Tom Fitton, President of the Watchdog legal group www.judicialwatch.org has adopted a PETITION to stop propagation of 'Sanctuary cities' where death has become an everyday day occurence at the hands of criminal foreign nationals.
So please sign this petition. www.sanctuarybusters.org/Index.asp?source.
www.numbersusa.com for more true facts.
September 30, 2008 2:08 PMObama is wrong. The stock market in the long run has been a good investment. Also who says everything has to be invested in the stock market? Obama is naiive about economics.
The country of Chile privatized social security years ago and it has been successful, although not perfect (low income earners have difficulty saving enough, political insiders control investments and take their cut).
http://www.cato.org/pubs/policy_report/pr-ja-jp.html
The biggest problem with Social Security is that many people that are drawing from the trust fund today have never contributed or contributed a very low percentage compared to what they currently receive.
As for Medicare, the only way to gain control is to eliminate fraudulent claims by both patients and doctors.
October 1, 2008 10:12 AMJust a couple years ago, my wife was listening to someone from England talking aout how they had at one point modified their system to sort of parallel ours. The speaker said it was working better than what went before, but it naturally had some problems. Then with the hype over switching part of the SS fund to privatized investment, they actually tried it. Apparently, according to the speaker, BIG MISTAKE.
Frankly, looking at what has happened to my 401K lately, I am happy none of my SS is in that kind of fund.
I wasn't too concerned when my SS age went to 66. I was a bit more concerned when the company froze our pension plan last year. But, at my age, I figured that would only lower me a bit more than $300/month. I am far more concerned about two things. First, the company also discontinued the retire medical plan, which I was counting on to cover my wife for the slightly over 3 years from the time I reach SS age and she becomes eligible for SS. The cost for insurance continuance under COBRA and HIPAA will be beyond our combined means.
The second thing is that under our level income retirement plan, if I retire at 66, the company will deduct an amount of money per month approximately equal to 1/2 my SS payment. They will continue this deduction till I am gone. The basis is that they are just recovering what they paid into the system for me. Problem to me is that with my life expectancy at 66, they will over 22 years collect about $216,000 OVER what will have been paid by ALL my employers in the 48 years I will have worked, even though I will have been employed by them slightly less than 29 years. I ran the numbers based on my W-2s, and it will take the company about 4 1/3 years to collect back what they have paid into my account.
I am one of quite a few American workers who will have to rely on SS for a significant part of my retirement income. I realize that there are some problems which need to be fixed. Congress has to stop tapping the SS fund to boost the General fund. It needs to repay the fund with everything that has been tapped, or leached, from the fund, with interest. It also needs to stop using the fund to provide money for illegal and other immigrants who never contributed to the system. Then they can start trying to find ways of overcoming the potential future shortfall in funding.
October 1, 2008 5:48 PMIf Congress had not stolen the INTEREST to support programs like HUD. (Reported by Reader Digest), Social Security would have built mega bucks in interest and would have supported many more poorer people that did not contribute as much. That INTEREST they stole belong to the people and the employers. It does not belong to Congress.
October 23, 2008 4:29 PMThe person who said Congress had "stolen the interest" to support other programs hit the nail on the head. A Trust Fund was established at the inception to help support SS through interest income. A lot of money has flowed through over the years. Why does not somebody suggest we systematically reimburse the Trust Fund and put it off limits to poaching? That would go a long way toward making SS more "secure." As for the stock market being a safe place over the long haul -- yes, but only for money you can afford to lose. 401K plans favor the wealthy over the poor because of the relative tax rates. And look at what has happened to people who depended on them for retirement. We must get away from the idea that SS is somehow a "giveaway"; stabilizing society at some basic level is a financial economy and a social benefit for the country.
Posted by L.F. Bullard at October 24, 2008 3:00 PM
October 24, 2008 3:03 PM
