Since the first monthly benefit was paid in 1940, Social Security has helped to provide a financial foundation for seniors during retirement. A majority of seniors rely on Social Security for at least half of their monthly income, and without it, senior poverty rates would be many times higher than they are today.
However, a grim reality faces America's most important social program. According to the latest report from the Social Security Board of Trustees, the program will begin paying out more in benefits than it's collecting in revenue beginning in 2022. Just 12 years later, in 2034, Social Security will have completely exhausted its $3 trillion in asset reserves. Should Congress do nothing and allow Social Security's excess coffers to run dry, it may take benefit cuts of up to 23% to sustain payouts through the year 2091. It's not exactly a bright forecast for current and future retirees.
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Will President Trump renege on his Social Security pledge?
The writing is on the wall that Social Security reforms are needed to protect benefits for current and future generations. Unfortunately, there are two big obstacles.
To begin with, Congress is far too busy with healthcare and tax reform to focus on Social Security reforms at the moment. And secondly, partisanship is exceptionally high on Capitol Hill, meaning there appears to be virtually no hope of cooperation between Democrats and Republicans in formulating a solution. In the interim, seniors and working Americans are left wondering what will become of this vital retirement program.
For his part, President Trump vowed during his campaign not to touch so-called entitlement programs like Social Security, Medicare, and Medicaid. Instead, Trump has pledged to increase the U.S. economic growth rate through a number of federal initiatives and reforms, including lower individual and corporate tax rates, which should lead to higher employment and boost wages. Since Social Security generated 87.3% of its revenue from the payroll tax in 2016, higher economic growth rates and wages should, in theory, provide the program with more income.
But the president came under fire in May after releasing his 2018 budget proposal. Contained within that proposal was a cut to Social Security's disability payments of $72 billion over the next decade, or about 4% of its total payouts between 2018 and 2027. This would appear to contradict Trump's campaign claims that he wouldn't touch Social Security, and it clearly concerns the more than 10 million people receiving disability checks on a monthly basis.
This man is a far bigger threat to Social Security than Donald Trump
Nevertheless, Trump's focus on healthcare and tax reform, along with his continued insistence that he'll leave programs like Social Security and Medicare alone, makes him unlikely to push for legislation that overhauls Social Security. The much bigger threat to Social Security recipients' monthly benefit checks might be Treasury Secretary Steven Mnuchin.
In June, Mnuchin hinted at the idea of deferring Social Security legislation to Congress. "The president has made it clear that on Social Security, that's not something he's addressing now, but if Congress wants to review that, obviously that's within your prerogative," Mnuchin told Rep. Chris Stewart (R-Ut.) at a House Appropriations Subcommittee hearing on the 2018 budget. While not openly endorsing the idea of making changes to Social Security, Mnuchin's commentary suggests that if Congress were to pass a Social Security bill, President Trump may have no choice but to sign it.
Don't get me wrong -- Social Security reforms are needed. Nevertheless, any bill produced by Congress is likely to be one-sided, which could reduce the effectiveness of the reforms over the long term. The GOP has long favored gradually raising the full retirement age, which would force future retirees to wait longer to receive 100% of their retirement benefit, or to accept a steeper reduction in their payout by claiming before their full retirement age. While cutting benefits by adjusting for longevity is a solution that would eliminate Social Security's impending deficit, additional revenue should probably be generated, too, to complement the adjustment in full retirement age.
And that's not all. Mnuchin later argued in August, shortly after the release of the annual Trustees report, that focusing on strengthening the economy would make Social Security more stable for future generations. The issue with Mnuchin's analysis is that it fails to account for the normal peaks and troughs that are part of the economic cycle, and higher growth rates alone will almost certainly fail to erase Social Security's entire budgetary shortfall.
Effectively, Mnuchin's solutions involve either allowing Congress to push through a unilateral reform bill or ignoring some basic economic principles and counting on U.S. economic growth to close Social Security's $12.5 trillion budget shortfall between 2034 and 2091. Either way, Social Security could find itself on shaky ground, and that's a worrisome scenario for seniors.
This writer continues to believe that effective Social Security reforms will require a blend of core ideas from both Democrats and Republicans. Anything less could compromise the financial futures of tens of millions of soon-to-be retirees.
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