Pushing to expand Social Security, Clinton makes history

August 4, 2016

Hillary Clinton made history last week in Philadelphia when she became the first woman ever nominated for the presidency by a major political party. But she also broke new ground by becoming the first presidential nominee in 68 years to use her acceptance speech to call for expanding Social Security.

Her comments signal a remarkable reversal in the Social Security policy debate, especially within the Democratic Party. After focusing for years on raising program revenues to preserve existing benefits, many party leaders, including Clinton, are now trying to boost benefits.

For a program that paid nearly $890 billion to 60 million beneficiaries last year, Social Security is barely discussed when presidential candidates accept their party’s nomination. More than half of the 42 acceptance speeches delivered since the Social Security Act was signed in 1935 didn’t reference Social Security at all, and most of those that mentioned the program did so just once, often only in passing.

The exception occurred in 2000. As George W. Bush accepted the Republican nomination that year, he mentioned Social Security five times—more than any other Republican—vowing to “strengthen” the program. Al Gore named Social Security a record 12 times when he became the Democratic nominee a few weeks later. He stressed the need to protect Social Security and shore up its financing but rejected Republican proposals to divert part of the program’s taxes to personal accounts. Neither candidate advocated raising benefits.

Clinton is only the second nominee of a major political party to call for expanding Social Security. The first was Harry Truman, who declared support for extending coverage and raising benefits in his 1948 nomination acceptance speech, when Social Security was much smaller than it is today.

If elected, how would Clinton expand Social Security? She didn’t give details at the Philadelphia convention, but the Democratic Party platform and her campaign website call for boosting survivor benefits and providing Social Security credits to people who interrupt their careers to care for family members and friends. They also advocate raising taxes on high-income workers to pay for these benefit sweeteners and close Social Security’s long-range financing gap.

Although relatively modest, these reforms could improve financial security for older women, especially widows who are now more than three times as likely to live in poverty as married older adults. But as our colleague Melissa Favreault has pointed out, improving survivor benefits won’t help the growing ranks of low-income older women who never marry or who divorce before qualifying for Social Security spouse and survivor benefits, and providing caregiver credits could raise benefits for many higher-income women who don’t need more support.

Clinton could choose to pursue Bernie Sanders’s much more ambitious goals for Social Security. He has proposed creating a minimum Social Security benefit equal to 125 percent of the federal poverty level for retirees with at least 30 years of covered employment, raising cost-of-living adjustments, and reworking the benefit formula to increase payouts to all retirees but disproportionately to beneficiaries with low lifetime earnings. To pay for this expansion and improve the program’s financing, Sanders would subject all earnings above $250,000 a year to the Social Security payroll tax, which now applies only to the first $118,500 earned each year. He would also impose an additional 6.2 percent tax on investment income for high-income people.

One of us (Smith) recently used DYNASIM, Urban’s dynamic microsimulation model, to evaluate Sanders’s proposal. Once fully phased in, these expansions would significantly raise after-tax incomes for lower and middle-income retirees. Very high income older adults would fare somewhat worse under the plan because the analysis assumes that employers would trim wages to offset the additional payroll taxes imposed by the plan.

Impact of Sanders's Social Security Expansions on Family Income

Sanders’s plan would also improve Social Security’s deteriorating financial situation. The program’s trustees now project that system costs will exceed total revenues beginning in 2019, and the deficit will grow until the trust fund is depleted in 2034. Thereafter, Social Security would be able to pay only about three-quarters of scheduled benefits. The additional tax revenue in the Sanders plan would extend solvency until 2073, nearly 40 years longer.

Although Clinton mentioned Social Security only once in her acceptance speech last week, her comments could mark a turning point in the Social Security reform debate. As stagnant wages, disappearing defined benefit pension plans, and rising out-of-pocket health care costs stoke concern about retirement security, the debate may be shifting from a focus on containing costs to expanding the system.

But Clinton’s shift in tone doesn’t end the debate. The Republican Party platform remains firmly opposed to any Social Security tax hikes. And devoting more money to Social Security leaves less for other policy goals, like trimming the national debt, helping low-income children, and rebuilding our crumbling infrastructure. At a minimum, perhaps the next president and Congress can begin serious discussions about how to fix Social Security’s long-term financing problems to safeguard this crucial program for future generations.

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From TaxVox: The fiscal legacy of Bernie Sanders’s surprising presidential candidacy

June 17, 2016

Bernie Sanders, the democratic socialist Senator from Vermont, surprised almost everyone by waging a very strong campaign for president.  However, it is now clear to almost everyone that he won’t be the Democratic Party’s nominee. 

While it is sometimes hard to notice, this election campaign has been full of interesting ideas, and Sanders has contributed a fair share. Some may even outlive his political aspirations. Here are a few of his best and worst ideas.

  • A carbon tax. Sanders was the first presidential candidate to propose a carbon tax, which is a market-based approach to addressing climate change. The idea is a favorite among economists from across the political spectrum. It might command bipartisan support if the two parties actually could work together and Republicans could cure their pathological aversion to taxes of any kind. Indeed, in 2008, Republican presidential candidate John McCain proposed his own market-based solution to climate change—an emissions trading system.
  • A financial transactions tax. Sanders was also the first presidential candidate to propose a significant tax on securities transactions. (Hillary Clinton proposed a vague but tiny tax on high-frequency trading.) Sanders’s rhetoric suggests that he thinks that Wall Street is the financial equivalent of air pollution, and his proposed tax rate was so high that it would discourage productive as well as unproductive trading and bring in much less revenue than he hoped. Nonetheless, many other countries are considering financial transactions taxes and a well-designed version could be a significant source of revenue in the US without an undue toll on the economy.
  • Huge, transparent tax increases on the rich. While Clinton would raise taxes on high-income households through various minimum taxes and other obfuscations, Sanders gets credit for relative transparency with his straightforward higher tax rates on the rich. No sleight-of-hand and needless complexity. His plan would have raised top tax rates on capital income to 64 percent and on labor income to over 70 percent. The drawback, however, is that such high rates are almost surely unsustainable.

Read the rest on TaxVox.

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From TaxVox: Sanders’s domestic program would help most households, but add more than $18 trillion to the debt

May 10, 2016

Most American families would receive new government benefits that would exceed their higher taxes under the domestic policy agenda of Democratic presidential hopeful Bernie Sanders. But even though Sanders would raise taxes on nearly all households by a total of more than $15 trillion over the next decade, his plan still would add an additional $18 trillion (plus at least $3 trillion in interest) to the national debt over the period—an unprecedented increase in government borrowing.   

After the Tax Policy Center estimated in March that Sanders would raise taxes across all income levels, his advocates complained that TPC and others were ignoring the senator’s ambitious new spending plans. They argued that when you include those proposals, such as free health care and college education, more generous Social Security benefits, and 12 weeks of family leave, most Americans would be better off than they are today, even if they’d pay higher taxes.

So with the help of the Urban Institute’s Health Policy Center and Income and Benefits Policy Center, TPC has estimated the net effect of Sanders’s tax and spending plan. This collaborative analysis found that Sanders is mostly right: for 95 percent of households, his plan would increase average government benefits by more than it would raise their average tax bill. And the changes would be highly progressive. Low- and moderate-income households would see a positive net benefit, on average, while the highest-income 5 percent would pay substantially more in taxes than they’d receive in new government transfers.

But…and there is a very big but. The analysis found that Sanders’s $15 trillion tax increase would pay for less than half the cost of his proposed new spending. Even with tax increases of a magnitude not seen since World War II, Sanders’s domestic agenda would still add $18 trillion to the national debt over 10 years—plus at least another $3 trillion interest costs. Nearly all of that increase would be due to his Medicare-for-all health plan.

Read the rest on TaxVox.

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Sanders is right: Philadelphia’s proposed soda tax is regressive, though small

April 26, 2016

Last month, Philadelphia became the latest city to propose taxing soda and other sugar-sweetened beverages. Such taxes have become popular as more evidence links sugar consumption to poor health and greater health expenditures.

With Pennsylvania’s presidential primary today, both Hillary Clinton and Bernie Sanders weighed in on the proposal. As The Upshot reported Friday, Clinton supports the tax, much of whose revenue is earmarked for early childhood education programs. It’s a laudable goal, especially combined with the evidence of high returns to investment in early childhood education.

But, as Sanders fired back, so-called “sin taxes” tend to be quite regressive, falling most heavily on low-income families. True? If so, is it a good argument against the tax?

Urban researchers recently published a paper examining the effects of soda taxes. Sanders is right: a soda tax would fall most heavily on the poor relative to their income. A one-cent per ounce tax would produce an average tax of 0.19 percent of income for the lowest quintile of earners, while the same tax would produce an average tax rate of 0.04 percent for the highest quintile.

On the other hand, tax rates of less than one-fifth of one percent are not very big. Even with Philadelphia’s three-cent tax, the lowest quintile might pay an extra $75 per year, all else equal. For some households $1.50 a week makes a real difference, but for most it probably doesn’t.  

Sugar tax

But, while Sanders’s critique is technically right, there might be more important issues to consider. For example, as Donald Marron wrote recently:

Another issue is how well sugar consumption tracks potential health costs and risks. If you are trying to discourage something harmful, taxes work best when there is a tight relationship between the “dose” that gets taxed and the “response” of concern. Taxes on cigarettes and carbon are well-targeted given tight links to lung cancer and climate change, respectively. The dose-response relationship for sugar, however, varies across individuals depending on their metabolisms, lifestyle, and health. Taxes cannot capture that variation; someone facing grave risks pays the same sugar tax rate as someone facing minute ones. That limits what taxes alone can accomplish.

 

In addition, people may switch to foods and drinks that are also unhealthy. If governments tax only sugary soda, for example, some people will switch to juice, which sounds healthier but packs a lot of sugar. It’s vital to understand how potential taxes affect entire diets, not just consumption of targeted products.

In other words, if many of the people affected by the new tax have only a “loose” relationship between sugar consumption and poor health, the tax might not buy much in terms of health improvements. That alone may not be a problem, so long as the tax still raises new revenue for early childhood education.

But its total revenue effects are uncertain. If people are highly responsive (and they tend to be) to the price increase—over $4 for a 12-pack of soda—they may just switch to other, non-taxed beverages. In other words, such a high tax may just drive people away from soda and similar beverages, failing to raise much new revenue. It is also possible that people may simply go outside of Philadelphia to buy their soda.

On the other hand, Philadelphia predicts that it’ll raise almost $100 million annually. Even if that guess is twice as high as reality, the city would raise $50 million in new revenue, which would buy considerable new early childhood education and other services.

Perhaps the soda tax’s uncertainty is in itself a good reason to support it. Such taxes are growing in popularity and the sooner we have real data on them, the sooner we can understand with certainty their real-world effects.

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To meet multifaceted needs in Indian Country, Sanders and Clinton should combine their proposals

April 5, 2016

Hillary Clinton and Bernie Sanders have both recently done something rare for a presidential campaign: they have elevated Native American issues (they’re the only candidates to do so). With a rally at the Navajo Nation, the largest reservation in the United States, Sanders spoke about his plan to address profound economic and infrastructure inequities faced by many Native communities.

In a presidential campaign filled with abstract rhetoric about trade policy, counterterrorism, and 2,000-mile border walls, voters may be surprised at the depth of Indian Country’s challenges. Some are serious, but perhaps not shocking. For example, between 2006 and 2011, the tribal unemployment rate was 16 percent, twice the 8 percent rate among non-Natives in the United States. Tribal poverty rates were also high: 30 percent overall and nearly 40 percent for children.

But other inequities are truly eye-popping. Between 2006 and 2010, more than 1 in 20 tribal households lacked at least one of these basic household features: a flushing toilet, hot and cold running water, or a bathtub or shower. That is a rate 12 times higher than the overall rate. Native households living in tribal areas also have a housing overcrowding rate almost four times as high as the non-Native population overall. Perhaps worse, these disparities persist despite considerable gains in housing conditions since 2000.

Native American poverty rates

Would Sanders’s plan be sufficient to improve housing and economic conditions in Indian Country? Probably not, but interestingly, if his plan were combined with Hillary Clinton’s, together they might. To see why, consider what Sanders’s plan would do:

Senator Sanders’s plan is well suited to improve and expand the housing stock on tribal lands. He proposes fully funding the Indian Housing Block Grant, the primary funding stream for tribal housing, and launching a $1 trillion infrastructure improvement program targeting high unemployment areas in Indian Country and elsewhere.

Because his plan includes a broader set of infrastructure improvements than Clinton’s, including expanding electric networks, it would provide tribes with the infrastructure they need to improve quality of life and bring down housing development costs.

Support for housing and infrastructure are necessary, but Clinton’s proposal would provide other key economic development resources. It would promote youth employment and small-business entrepreneurship in underserved communities.

It would also increase funding for community development financial institutions (CDFIs), which have helped promote entrepreneurship in tribal areas since the 1990s. Native CDFIs have expanded capital and fostered sustainable small businesses in many tribal communities. The number and capacity of Native CDFIs has grown in the past 10 years, but tribal private-sector activity and Native CDFIs were hard hit by the recession. Additional supports for these critical institutions would help tribes regain momentum as they chart their own course for longer-term economic development and growth.

The needs in Indian Country are great, and they deserve multifaceted solutions. While both candidates get a lot right, including their mutual emphasis on improving tribal consultation and self-determination, whichever candidate ends up being the Democratic nominee should consider adopting the strengths of his or her opponent’s platform in order to support our Native communities. 

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What could the candidates' tax plans mean for you?

March 25, 2016

How could the presidential candidates' tax plans affect you? Tax Policy Center and Vox partnered to create a calculator that shows how much your federal tax liability could change under each plan.

Here's an example that illustrates what a single filer with one child and making $40,000 a year would pay, according to the plans and proposals laid out by Donald Trump, Ted Cruz, Hillary Clinton, and Bernie Sanders.

Tax Policy Center and Vox tax calculator

Find out what the candidates' tax plans could mean for you.

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In the news: The truth about trade and job losses

March 18, 2016

Most of the current presidential candidates have been making sweeping negative statements about US agreements for freer trade. Both Republican Donald Trump and Democrat Bernie Sanders have made this opposition a main talking point. While Trump talks about “losing to every country” that has out-bargained us, Sanders prides himself on having voting against every “disastrous” free trade agreement because they lead to American job loss and declining earnings.

The reality of trade is much more complex. While trade does contribute to job loss and lower earnings, its effect is much smaller than many believe. And those negatives are offset by clear gains, both for the United States and other countries. A real debate on trade should look at winners and losers and compare the effects of trade for each.

Read the rest in Washington Monthly.

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From TaxVox: Sanders proposes historic tax increase to fund new social spending

March 4, 2016

Democratic presidential hopeful Bernie Sanders has proposed a tax increase of $15.3 trillion over the next decade, according to a new analysis by the Tax Policy Center. The tax hikes, which would help finance Senator Sanders’s ambitious new spending programs for health care, education, and family leave, would be the largest since World War II.

Sanders would raise taxes by 6.4 percent of Gross Domestic Product over the next 10 years, and by 7 percent of GDP, or more than $25 trillion, over the following decade. In 2017, US households would face an average tax hike of nearly $9,000.

Under the Sanders plan, every income group would pay higher taxes on average, though he’d aim most of the tax increases at the highest-income households. TPC found that 38 percent of the tax increases would be paid by the highest income 1 percent of households, and nearly a quarter would be paid by the top 0.1 percent.

On average, the lowest-income households would pay about $165 more than under current law, reducing their after-tax incomes by 1.3 percent. Middle-income taxpayers would pay about $4,700 more, or 8.5 percent of their after-tax income. At the same time, those in the top 1 percent would pay an average of $525,000 more, reducing their after-tax incomes by one-third; and those in the top 0.1 percent would pay nearly $3.1 million more, slashing their after-tax incomes by almost 45 percent.

Analysis of Sanders tax plan

Read the rest on TaxVox.

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Can economic growth really fix Social Security?

February 5, 2016

In less than 20 years, according to the latest official projections, Social Security will no longer be able to pay full benefits to retirees and people with disabilities. Yet, presidential candidates aren’t talking much about how they would fix the problem.

Democratic candidates Hillary Clinton and Bernie Sanders want high-salaried workers to pay more Social Security taxes. A few Republicans, like Jeb Bush, Chris Christie, and Marco Rubio, have proposed raising the retirement age and restricting benefits for high-income people to shore up Social Security. But 7 of the 12 Republicans who competed in the Iowa caucuses don’t offer any specific ideas on their websites about how to close the funding gap.

Republican candidate Mike Huckabee dropped out of the race after the Iowa caucuses this week. But during a debate last month, he offered a painless solution for Social Security: “Here's the fact. Four percent economic growth, we fully fund Social Security and Medicare. Our problem is not that Social Security is just too generous to seniors. It isn't. Our problem is that our politicians have not created the kind of policies that would bring economic growth.”

Some left-leaning commentators have made the same argument. Strong economic growth would raise earnings, which would boost payroll tax revenue going to Social Security, eliminating the need to cut benefits or raise taxes.

Is the solution really that easy? Unfortunately, it isn’t.

Four percent growth year after year is unrealistic. It’s been more than 40 years since we last completed even 10 years of 4 percent average annual growth (in inflation-adjusted dollars). And back in the early 1970s, the labor force was growing more than 2 percent a year as the baby boomers were coming of age and many women were entering the workplace. It’s going to be a lot harder to achieve that growth over the coming decades when the labor force is projected to increase only 0.5 percent a year.

But let’s say we could somehow turbocharge worker productivity enough to achieve average real economic growth of 3.4 percent a year indefinitely (and even higher rates in the short-term as we continue to recover from the Great Recession), instead of the 2.1 percent long-term rate that the Social Security trustees assume. This is optimistic, but it did happen between 1995 and 2005 (albeit when the labor force was growing more rapidly than today). Let’s assume that all of this additional growth results from higher productivity, instead of by expanding the labor force through more immigration or higher employment rates, and that it raises earnings uniformly for all workers.  

Crunching the numbers with DYNASIM, Urban Institute’s projection tool, we find that such economic growth would in fact significantly improve Social Security’s long-run balance sheet, pushing back by three decades the date when the system could no longer pay full benefits, from 2035 to 2064.

Impact of Economic Growth on the Social Security Trust Fund Balance, 2020–85

But those financial gains won’t last. Strong economic growth generates a lot of tax revenue for Social Security right away without immediately changing benefits. Over time, however, economic growth puts the system on the hook for much higher benefit payments. As the economy grows faster and people earn more, they eventually receive more Social Security benefits once they retire.

Under the high-growth scenario we considered, those higher benefits start squeezing Social Security by about 2050, when the system permanently begins owing beneficiaries more payments than it collects from taxes. That annual deficit then soars under the high-growth scenario as more retirees begin collecting sizable Social Security checks, growing much more rapidly than under the low-growth scenario. (These estimates compare annual tax receipts to scheduled benefits, not actual benefits, since Social Security would have to cut benefits paid each year to prevent the system from going broke.)

Impact of Economic Growth on Annual Social Security Deficit, 2020–85

Faster economic growth, however implausible, might delay Social Security’s insolvency but won’t permanently solve the system’s financial woes. Instead, we’re going to have to make hard choices about raising taxes and cutting benefits. The presidential campaign is a good time to begin the debate.

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Clinton, Sanders education plans may have important flaw

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January 20, 2016

The leading Democratic candidates for president have released proposals aimed at expanding universal access to education both before kindergarten and after high school. In a new analysis published on Urban Wire, we question whether the voluntary state-federal partnerships underlying these proposals will ultimately exclude too many Americans.

Hillary Clinton’s college plan would provide federal grants to states that “step up and meet their obligation to invest in higher education by maintaining current levels of higher education funding and reinvesting over time.” Bernie Sanders has introduced legislation that would provide additional funding to states to eliminate tuition and fees at public colleges if they meet a number of requirements. Both candidates have announced intentions to make high-quality preschool available to all Americans.

But we show that, if past experience with Medicaid expansion under the Affordable Care Act is any guide, up to* 40 percent of potential beneficiaries may be excluded from these plans because they live in states led by governors that refuse to participate.

Hillary Clinton, Bernie Sanders, and their supporters need to carefully consider whether a state-federal partnership model will ultimately leave out too many people and exacerbate existing educational inequalities.

Read the full post on Urban Wire.

*This post was updated to clarify the true percentage of those potentially affected.

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