Social Security: Why don't the candidates get it?

Social Security, like the overall federal government, is totally broke. But most of the presidential candidates don't seem to get this fact.

So, how big is this red ink? I suggest you sit down and take a deep breath. It's $26 trillion, which is far more than a year's gross domestic product and over half of total U.S. wealth.

The current Social Security payroll tax rate (employer plus employee) is 12.4 percent. Paying for legislated benefits through time requires an immediate and permanent rise in this tax rate to 16.4 percent. Delay means an even larger tax hike down the road.

Demonstrators, including many senior citizens, protest against cuts to federal safety net programs, including Social Security, Medicare, and Medicaid in Chicago, Illinois. (file photo)
Getty Images
Demonstrators, including many senior citizens, protest against cuts to federal safety net programs, including Social Security, Medicare, and Medicaid in Chicago, Illinois. (file photo)

Donald Trump and Ben Carson want to fix this enormous problem by encouraging very wealthy retirees to voluntarily forego their benefits. Good luck with that. The rich aren't particularly charitable when it comes to Uncle Sam. Moreover, their benefits are a drop in the bucket compared to the problem.

Ben Carson also wants to gradually raise the full retirement age (now 66) for those under 55. So do Macro Rubio, Jeb Bush and Ted Cruz. The logic here is that those under 55 will live and collect longer, so it's only fair for them to wait to receive full benefits.

This makes sense for the rich. But a new study by the National Academy of Sciences shows that life expectancy at age 50 has been falling by a half year for poor males and by four years for poor females!

Moreover, raising the full retirement age to, say, 70, would reduce Social Security's $26 trillion shortfall – but by less than one third.

In addition to differentially hurting the poor, raising the system's retirement age leaves everyone born before 1960, i.e., all of today's older people (including most of the candidates) off the hook. This is unfair. Today's and tomorrow's kids, all of whom would face what amounts to a 20-percent cut in their lifetime benefits, weren't around when our country blithely accumulated its $26 trillion in Social Security debt.

Here's Carly Fiorina's answer: "I am not prepared to go to the American people and talk to them about how we're going to reform Social Security and Medicare until I can demonstrate to them that the government can execute with excellence, perform its responsibilities with excellence, serve the people who pay for it with excellence." Unfortunately, excellent execution of Social Security is not going to generate $26 trillion.

Ted Cruz wants to price-index, rather than wage-index, initial benefit levels. This would save the system a lot of money, but, as real wages rise, Cruz' plan would gradually make Social Security benefits disappear as a share of pre-retirement earnings.

Chris Christie proposes cutting benefits for retirees with incomes over $80,000. For incomes above $200,000, Christie's Social Security benefit tax is 100 percent. I doubt this would save anything close to $26 trillion. But it would certainly keep people from saving for old age.

John Kasich understands the depth of our fiscal problems far better than most. He had me testify to the House Budget Committee years ago about our nation's overall fiscal gap, which, incidentally, now stands at $200 trillion. (So, no, the rest of the fiscal system can't bail out Social Security.) But Kasich has yet to offer specifics for addressing Social Security's funding crisis.

What about Rand Paul and Mike Huckabee? Their answers lie in broad-based tax reform. Paul advocates a flat 14.5-percent income tax that would replace both Social Security's FICA tax and the current personal income tax. Huckabee favors the FairTax, which levies a 23 percent effective tax on retail sales.

I'm a big fan of fundamental tax reform. And Paul's and Huckabee's tax reforms could well increase federal revenues by 10 or so percent. But we need a 53-percent increase in the path of federal revenues to close our nation's overall $200 trillion FISCAL GAP. So what Paul and Huckabee are really proposing is very major reductions over time in federal expenditures, including, presumably, Social Security benefits.

What about the Democrats?

Bernie Sanders, Martin O'Malley, and Hillary Clinton want to raise Social Security benefits and pay for them with new taxes. Sanders advocates a tax on Wall Street trading. Martin wants those with earnings above $250,000 to pay more Social Security. Hillary would raise the ceiling (now $118,500) on taxable Social Security earnings. It's good to hear these Democrats want to fund their proposed benefit hikes, but this won't resolve the existing $26 trillion shortfall.

So where do we stand? The candidates all get that Social Security has a funding problem. Most don't get its size. And none has yet advanced a real answer.

My solution is called the Purple Social Security Plan. It would freeze the existing system, pay off, over time, all accrued benefits, and replace it with a modern, progressive personal account system that is fully funded and involves zero participation by Wall Street.

Commentary by Laurence Kotlikoff, an economist at Boston University and co-author of "Get What's Yours – the Secrets to Maxing Out Your Social Security Benefits" anddeveloper of Follow him on Twitter @kotlikoff

Correction: John Kasich has not called raising the retirement age for Social Security benefits. An earlier version of this article erred in saying he did.