Each and every month, more than 62 million people receive a benefit check from Social Security. Most of these folks are aged beneficiaries, of which just over 60% rely on their monthly payout account for at least half of their income. In other words, Social Security's importance may have actually grown since it was first signed into law in 1935.
Unfortunately, the future for America's most important social program isn't so bright.
Social Security is less than two decades from disaster
In early June, the Social Security Board of Trustees released its annual report on the short- (10-year) and long-term (75-year) outlook for the program. It found that, beginning this year, Social Security is expected to spend more than it collects in revenue. We have to go all the way back to 1982 to find the last time that happened.
And this isn't just a one-off event. Although Social Security's net cash outflow is projected to decline slightly in 2019, it'll accelerate rapidly beginning in 2020 and beyond. Despite $2.89 trillion in asset reserves at the moment, the Trustees report projects that it could all be exhausted by 2034. Should this excess cash disappear, Social Security would survive thanks to its two sources of recurring revenue -- the 12.4% payroll tax on earned income and the taxation of benefits. It would, however, face a steep cut to benefits of up to 21% to sustain payouts to then-current and future beneficiaries through the year 2092.
This is a pretty dismal outlook for such an important social program, which is why Americans have called on Congress to take action and fix Social Security.
How likely is it that the new Congress will tackle Social Security reform?
With midterm elections now in the books and the makeup of Capitol Hill determined for the next two years, you might be wondering what the chances are that lawmakers get serious about Social Security's problems and fix this mess. Well, I can answer that question with a high level of confidence in one word: zilch!
As much as we'd like to believe that lawmakers are going to tackle Social Security reform, there's no chance of that happening for two key reasons.
Trump won't allow direct reforms to pass
To begin with, President Donald Trump doesn't believe that directly reforming Social Security is the answer. In fact, long before becoming president, Trump had the following to say at the Conservative Political Action Conference in March 2013: "As Republicans, if you think you are going to change very substantially for the worse Medicare, Medicaid, and Social Security in any substantial way, and at the same time you think you are going to win elections, it just really is not going to happen. ... What we have to do and the way we solve our problems is to build a great economy."
Translation? Messing directly with Social Security means losing future seats in Congress. That's because, regardless of the solution, direct changes to Social Security means some group of folks loses. This group, whether it be the wealthy or future generations of retirees, could choose to voice their displeasure by voting some of these lawmakers out of office.
Rather, Trump has chosen to attack the problem indirectly through the passage of the Tax Cuts and Jobs Act. By cutting peak corporate income tax rates and lowering the income-tax liability for many working Americans, it's believed to boost U.S. GDP and wage growth, leading to higher payroll tax collection. In 2017, payroll taxes accounted for $873.6 billion of the $996.6 billion collected by the program.
Plus, Trump will now be turning his attention to his own election campaign in two years. The last thing he'd want to do is risk infuriating a group of voters with direct Social Security reforms.
The political divide is too great
Aside from President Trump standing in the way of meaningful reform, both Democrats and Republicans are miles apart on a solution.
Democrats would prefer to raise or eliminate the maximum taxable earnings cap associated with the 12.4% payroll tax on earned income. In 2018, earned income between $0.01 and $128,400 is subject to this tax, while any earnings above this amount is exempted. This means a small percentage of well-to-do workers earning above this amount escapes payroll taxation on some, or perhaps a majority, of their income. Democrats would remedy this by requiring the rich to pay more into the program, thereby impacting only a small percentage of workers and adding more than enough new revenue to offset Social Security's $13.2 trillion cash shortfall between 2034 and 2092.
Meanwhile, Republicans would like to see the full retirement age gradually raised from a peak of 67 in 2022 to as high as age 70. Your full retirement age is the age where you're entitled to receive your full benefit, as determined by your birth year. By requiring future generations of workers to either wait longer to receive their full benefit, or to accept a steeper reduction by claiming early, the GOP's solution would save the program money over the long run, and also eliminate the $13.2 trillion cash shortfall.
The problem is that both of these solutions work, which means there's absolutely no incentive for either party to work with their opposition to find a middle ground.
Not to mention any formal amendments to Social Security would require 60 votes in the Senate -- and the last time either party had a supermajority in the Senate was 40 years ago. Without bipartisan cooperation, 60 votes isn't achievable. And based on the above, there's virtually no chance of bipartisan cooperation with this new Congress.
I'm afraid we're looking at another two years at minimum (but more likely 15) before anything gets done with Social Security on Capitol Hill.