For millions of older Americans, there's no more pressing issue than what'll happen with Social Security. Some 71% of unmarried elderly individuals rely on Social Security for half of their monthly income, and nearly three in five baby boomers anticipate counting on the program for half of their monthly income.
But Social Security itself isn't in great shape.
According to estimates from the Social Security Board of Trustees, America's most vital social program is slated to begin paying out more than it's bringing in annually by the year 2020. Some 14 years later in 2034, the Trust's trillions of dollars in spare cash will be completely depleted.
If there is a silver lining here, it's that exhausting Social Security's spare cash doesn't mean the program is going bankrupt. As long as people are working, payroll tax revenue will be generated and the program will receive tax-based revenue. However, it could mean up to a 21% decline in benefit payments across the board, which would be a devastating blow for the majority of seniors and boomers already reliant, or expected to be reliant, on Social Security income during their golden years.
Now more than ever seniors want to be reassured that Congress won't be tinkering with the retirement safety net.
Trump's Social Security pledge
When Donald Trump was elected president in November, it was on the heels of numerous campaign promises. One of those key promises was that he would leave Social Security and Medicare as is. Trump has suggested that America has an obligation to its seniors to honor its commitment to pay their Social Security benefits.
Instead of directly altering Social Security, Trump's "solution" involves indirectly improving the program's outlook by focusing on various economic reforms. Trump's thinking is that if GDP growth can be improved to a steady 3% to 4% annually, then wages can grow, and payroll taxes, which are taken as a percentage of wages, will also increase. Since payroll taxes accounted for 86.4% of all revenue collected by Social Security in 2015, an increase in GDP growth could have a meaningfully positive impact on reducing the current $11 trillion-plus expected budgetary shortfall by 2034.
Trump's indirect fix encompasses several parts. First, he's planning to tackle individual and corporate income tax reform. For individuals, he wants to lower ordinary income tax rates for nearly all Americans, as well as simplify taxes by narrowing from seven tax brackets to just three. For businesses, Trump has suggested reducing the corporate tax rate from 35% to just 15%, as well as setting a special corporate repatriation holiday tax rate of 10% on cash currently being held in foreign countries. Since the U.S. is a consumption-driven economy, putting more money in the hands of consumers and business could lead to higher growth rates.
Additionally, Trump wants to renegotiate trade deals, pass a $550 billion infrastructure package over 10 years, and promote America's domestic energy industry.
However, Trump's pledge to leave Social Security as is may not be a promise he'll be able to keep.
Mick Mulvaney signals entitlement cuts are a possibility
Mick Mulvaney, Trump's new director of the Office of Management and Budget, is known around Washington as an ardent fiscal hawk and a believer in balanced budgets. In other words, he's not afraid to suggest that unfavorable cuts be made to popular programs in order to balance a budget.
For those who may not recall, back in 2011, Mulvaney introduced the Balancing Our Obligations for the Long Term Act (BOLT Act). Mulvaney's measure sought to reduce government spending to lead to a balanced budget. Among the cuts that Mulvaney outlined in the BOLT Act was a reconciliation of long-term savings in so-called entitlement programs -- Social Security, Medicare and Medicaid.
In the past, Mulvaney has also been a supporter of raising Social Security's full retirement age to 70 (it's currently slated to hit 67 in 2022), thus reducing payments for future generations of retirees. He's also on record as being in favor of a partial privatization of Social Security, according to nonpartisan website InsideGov.
This past week, Mulvaney was back at it again, raising eyebrows around the country with the announcement that Social Security cuts beyond the 2018 budget could be a genuine possibility. He said on Hugh Hewitt's conservative radio show last week, "There are ways that we can not only allow the president to keep his promise but help him keep his promise by fixing some of these mandatory programs."
As noted by AOL, Mulvaney is attempting to "socialize the discussion" of Social Security and entitlement cuts as a genuine possibility. Mulvaney went on to say, "As soon as the 2018 spending budget is done at the end of next week, I'm hoping to put together something for the president to look at on the other pieces of entitlement spending, or mandatory spending."
This statement aligns with his commentary during his confirmation hearings that he would "make difficult decisions today in order to avoid nearly impossible ones tomorrow [on entitlement reforms]."
Trump may have little choice but to reform Social Security
Though Trump was likely popular among seniors because of the promise that he wouldn't touch Social Security, he surrounded himself with Republican leaders who don't share his vision.
Both Trump and his Vice President, Mike Pence, once believed in a partial privatization of Social Security, while a number of his Congressional Republican peers strongly believe in the idea of raising Social Security's full retirement age to encourage healthy seniors to work longer, and to account for lengthening life expectancies. In order for Trump to get some of his most important campaign measures passed, he may have to consider making concessions within his own party, which may include breaking his promise not to alter Social Security.
The good news, for now at least, is that the 2018 federal budget won't suggest any cuts to Social Security, or Medicare for that matter. However, it's pretty clear from Mulvaney's comments that cuts aren't out of the question in the 2019 federal budget and beyond. A lot might depend on how successful Trump and Republicans are in pushing through tax reform and repealing and replacing the Affordable Care Act. If the federal deficit fails to shrink to acceptable levels in the eyes of Mick Mulvaney, you can be all but certain that he'll be angling for President Trump to consider reforms and/or cuts to Social Security and other mandatory spending programs.