Hillary’s and Bernie’s Pie-in-the-Sky Social Security Proposals

See WSJ article by Andrew Biggs. Excerpts:

"Mr. Sanders would eliminate, over 17 years, the $118,500 ceiling on which payroll taxes are levied. He also would immediately apply a 6.2% tax on investment income to households with incomes above $250,000."

"The maximum earnings subject to the payroll tax would be raised, but—and this is significant—without increasing the benefits eventually paid out to those who pay more in. Moreover, for the first time, non-wage income would be taxed."

"Mrs. Clinton would raise retirement payments for widows as well as provide Social Security credits for individuals who take time out of the workforce to care for a child or an infirm adult. Mr. Sanders would increase the basic benefit for most retirees, raise cost-of-living adjustments, and institute a new minimum benefit for long-career low earners."

"Under Mrs. Clinton’s plan, about 57% of the total dollar increase in benefits would flow to the bottom two-fifths of households, with 21% received by the top two quintiles of households. Under Mr. Sanders’s plan, 35% of total benefit increases flow to the bottom two-fifths of households while 44% go to the top two-fifths."

"Social Security currently replaces 90% of an individual’s first $10,272 in average pre-retirement earnings, with lower replacement rates for earnings above that level. Mr. Sanders raises the annual earnings covered by that 90% replacement rate to about $11,800."

"Mr. Sanders also institutes a minimum benefit of 125% of the poverty threshold for workers with 30 years of earnings"

"Despite increased taxes, neither proposal would shore up Social Security’s long-term funding deficits. These currently range from $10 trillion to $15 trillion over the next 75 years"

"The Sanders plan, according to Social Security Administration actuaries, would close about 82% of the program’s long-term deficit as scored by the Social Security’s Trustees. But it would fix only about half of the larger shortfall as projected by the Congressional Budget Office.

Mrs. Clinton’s more restrained benefit increases would probably let her approach 75-year solvency under the assumptions made by the Social Security Trustees, but still fall well short of addressing larger projected shortfalls estimated by the CBO"

"both presidential contenders would raise the effective top marginal tax rate by 12 percentage points."

"SSA actuaries assume that upper-income individuals would not work less in response to higher payroll taxes—but the SSA and the CBO do assume that if employers must pay 6.2% tax on their employees’ earnings above $118,500, they will reduce employee wages to cover the extra costs. Those lost employee earnings would no longer be subject to federal income taxes, state income taxes, or Medicare payroll taxes. In short, while Social Security might gain $2.4 trillion over 10 years, the rest of the budget would lose nearly half a trillion dollars in revenues over that time."