According to the April statistical snapshot from the Social Security Administration (SSA), nearly 61.4 million people were receiving a monthly benefit check. A whopping 68% of these individuals are retired workers. More than 60% of these retired workers, per the SSA, count on their monthly benefit check to comprise at least half of their monthly income. Social Security simply is that important to the financial well-being of our nation's seniors.
Social Security is less than two decades away from a big problem
Unfortunately, Social Security itself isn't in great shape. To begin with, the ongoing retirement of baby boomers from the workforce is pushing the worker-to-beneficiary ratio ever lower. But it's not just baby boomers that are wreaking havoc on the program. Finger-pointing can also be made at the rich, who are living significantly longer than lower-income folks and pulling a larger payment for a longer period of time from Social Security. Likewise, lengthening life expectancies over the past couple of decades is also to blame.
The result, according to the 2016 Social Security Board of Trustees report, is the expectation that Social Security will begin paying out more than it collects by 2020, and that it'll have exhausted the entirety of its $2.85 trillion in asset reserves by 2034. Should this happen, the Trustees have predicted the possibility of a cut in benefits of up to 21% in order to keep the program solvent through 2090.
The idea of steep benefit cuts being less than two decades away is a scary thought, and it could be a primary motivator for Congress to act.
Trump's Treasury Secretary laid out a possible path to Social Security cuts
However, President Trump hasn't exactly been forthcoming with a plan to fix Social Security. During his campaign, and since entering the Oval Office, Trump's only pledge has been that he wouldn't touch Social Security.
Instead, he's chosen a more indirect approach through tax reforms. The president believes that lowering individual and corporate tax rates will stimulate the economy, increasing wages and annual incomes, and ultimately resulting in higher payroll tax collection for Social Security. But considering how difficult healthcare reform has been for the Republican-led congress thus far, many people have their doubts about this indirect fix of Social Security.
A direct solution may be needed, which is difficult considering Trump's earlier pledge not to touch the 82-year-old program. However, Treasury Secretary Steven Mnuchin may have a solution.
Recently, Mnuchin hinted at the idea of the White House potentially deferring Social Security legislation to Congress. In other words, if Congress voted in favor and passed legislation to change aspects of Social Security, Trump may go along with it.
As reported by Yahoo! Finance, Mnuchin was quoted as telling Rep. Chris Stewart (R-Uta.) at a House Appropriations Subcommittee hearing on Trump's 2018 budget, "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."
Though Mnuchin's commentary doesn't endorse Social Security cuts, it doesn't exactly suggest that the White House would act against a Republican consensus in Congress, should one be reached.
The ethos of Republican ideology in one Social Security bill
One possible solution that could once again be floated in Congress is Rep. Sam Johnson's (R-Tex.) Social Security Reform Act of 2016, which was introduced this past December. The Social Security Reform Act hits on all of the key points of Social Security reform that Republicans have tried to enact at one point or another.
Here's a quick rundown of Johnson's plan:
- The full retirement age would be increase from age 67 to age 69 by 2030.
- The current cost-of-living adjustment (COLA) calculation would be replaced by the Chained Consumer Price Index (CPI). The Chained CPI takes into account substitution (the act of forgoing more expensive goods and services for cheaper alternatives), whereas the current COLA calculation does not, meaning it would result in smaller annual "raises" for seniors.
- The taxation of Social Security benefits would begin to phase out in 2045, and disappear completely by the year 2054.
- Spouses and children of higher-earning retired and disabled individuals would have a cap placed on their monthly benefits.
- The retirement earnings test, which allows the SSA to withhold some or all of your benefits if you earn too much within a given year and claim benefits before reaching full retirement age, would be eliminated
- COLAs would be frozen for the wealthy beginning in Dec. 2018.
- Lastly, minimum benefits for low-income retired working Americans would be lifted.
The last point, a benefits hike for low-income retirees, might shock a few people, but this plan epitomizes the path Republicans would prefer to take with Social Security. Namely, raising the full retirement age to account for lengthening life expectancies, adjusting COLA to the Chained CPI, and ending the taxation of benefits.
But this is far from the only solution that would work on Capitol Hill – and that's the problem.
The Democrats have a workable Social Security plan, too
In April, Rep. John Larson (D-Conn.) reintroduced the Social Security Act 2100, which was first presented back in 2014. This plan, like Johnson's, would eliminate Social Security's 75-year budgetary shortfall.
Larson's plan would:
- Increase the primary insurance amount formula, resulting in higher payouts to beneficiaries.
- Switch the COLA to the CPI for the Elderly (CPI-E). The CPI-E only takes into account the spending of households with persons aged 62 and up, meaning it would be expected to be more reflective of the higher medical and housing costs seniors face compared to middle-aged working Americans. In short, the CPI-E would lead to bigger annual "raises."
- Minimum annual benefits would be raised to 125% of the federal poverty level.
- The taxation threshold on Social Security would be increased, since they haven't been adjusted for inflation in 34 years.
- The payroll tax would be reinstituted on earned income above $400,000. Currently all earned income between $0.01 and $127,200 (as of 2017) is subject to the payroll tax, with any earned income beyond $127,200 free and clear of it.
- Gradually increases the payroll tax for all working Americans by 1.2% (or 2.4% for the self-employed) over a 24-year period.
Since both parties have a plan that works, neither has been willing to back down or work with the other party. Thus we have our stalemate on Social Security and a rapidly approaching asset reserve exhaustion date.
If Congress manages to come to a consensus on Social Security reforms, given how long it's been since any meaningful reforms were enacted, Trump would probably have no choice but to consider signing it into law. Whether it happens under the Trump administration or not, change is eventually coming to the Social Security program.