In 2016, the Center on Budget and Policy Priorities, a nonprofit policy institute, examined 2015 data to gauge the impact Social Security income has on our nation's seniors and determined that without it some 22 million people, 15 million of whom are seniors, would be considered poor. Social Security is truly important in allowing our nation's senior citizens to make ends meet; 61% of them rely on Social Security for at least half of their monthly income.
Social Security is coming to a crossroads
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Yet, this crucial program is on a slippery slope toward disaster, and a lot of people, including lawmakers in Washington, know it. Demographic changes that include the ongoing retirement of baby boomers, the steady lengthening of life expectancies, and the rich notably outliving the poor -- and collecting a larger Social Security check in the process -- have weighed on America's most important social program.
According to the 2017 report from the Social Security Board of Trustees, $3 trillion in asset reserves is expected to start being depleted in 2022, leading to its total exhaustion by 2034. The trustees forecast a further $12.5 trillion budgetary shortfall between 2034 and 2091. When the excess cash is officially gone, Social Security benefits may need to be slashed by up to 23% to preserve payouts through the year 2091.
President Donald Trump pledged during and after his campaign not to touch Social Security, which was a big reason why seniors turned out in favor of Trump during the campaign. Trump instead plans to utilize tax reform, via cuts in corporate and individual tax rates, as a means to boost U.S. GDP growth, expand wages, and generate more payroll tax revenue for Social Security. In 2016, payroll tax revenue accounted for 87.3% of the $957.5 billion collected.
Trump may have to break his Social Security promise
But could Trump break his promise not to touch Social Security? If the Republicans' 126-page congressional budget resolution, released in July, is anything to go by, we could see Social Security reforms triggered sooner than later.
As pointed out by The Senior Citizens League, budget resolutions are not laws, but they do set forth a blueprint of legislation that lawmakers tend to follow, providing the American public with some guidelines of what to expect from Congress.
In particular, the Republicans' budget resolution for the 2018 fiscal year devoted a section to policy statements on Social Security (Sec. 516, pages 102-107, for those interested). The first two pages discuss the apparent problems with the program, then the concept of a "reform trigger" is introduced:
In other words, point one above suggests that Social Security reform legislation should already be triggered. Remember, there's an estimated $12.5 trillion deficit that needs to be dealt with between 2034 and 2091.
In the 2017 Board of Trustees report, the actuarial deficit for the next 75 years rose by 17 basis points from the 2016 report, to 2.83%. This suggests that a 2.83% increase to Social Security's payroll tax, which currently sits at 12.4% for earned income between $0.01 and $127,200, would need to be passed along to workers and businesses in order to completely eliminate the expected $12.5 trillion budgetary shortfall. But as Trump has noted, direct changes to Social Security are off the table in his mind.
Yet, according to the budget resolutions from the GOP, Trump would be compelled to present legitimate solutions to fix Social Security to the House and the Senate, both of which are under Republican control for the time being.
It's worth pointing out that the resolution embraces bipartisan cooperation and expediency in passing legislation. However, in light of the partisanship that exists in Congress today, across-the-aisle efforts are highly unlikely. The language also calls for protections of low-income and disabled folks, as well as those who lean on Social Security heavily during retirement, during the reform process.
This isn't the first time Republicans have hinted at Social Security reforms. Treasury Secretary Steven Mnuchin suggested a few months ago that if Congress were to take up Social Security reforms, the president may have no choice but to consider signing them should a consensus be reached.
Reforms are needed, but they should be bipartisan
It's pretty evident from the trustees' data that Social Security reforms are needed, yet it's been 34 years since any truly major legislation regarding Social Security has been passed. With a 17-year timeline until possible benefit cuts, something needs to be done.
On Capitol Hill, a lack of ideas isn't the issue. We've witnessed dozens of solutions proposed that would, in many cases, eliminate the $12.5 trillion budget shortfall over the next 75 years. The primary issue is that the core fixes for Republicans and Democrats are at opposite ends of the spectrum, yet both resolve the budgetary shortfall. In effect, neither party will remotely consider working with the other (as outlined in the budget resolution above).
Democrats want to approach fixing Social Security by raising additional tax revenue from high earners. Earned income above $127,200, as of 2017, isn't subject to the payroll tax. Democrats want to adjust this such that the payroll tax is reinstituted on earned income above $250,000 or $400,000, as an example. This would add fresh income to the program.
On the other hand, Republicans want to adjust Social Security for increased longevity. They plan to do this by increasing the full retirement age, or the age at which people become eligible for 100% of their benefits. The full retirement age is on track to hit 67 years by 2022 for those born in 1960 or later, but the GOP would like to see it gradually raised to 68, 69, or 70 years, requiring seniors to work longer and wait to claim Social Security, or accept a steep reduction in benefits by claiming early.
Combined, these core proposals would work to resolve Social Security's long-term issues. But can Republicans and Democrats play nice in Washington? That remains to be seen.
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