Hands down, Social Security is our country's most important social program. Aside from protecting some 175 million working Americans in the event of long-term disability and/or an untimely death (nearly 6 million people receive a survivor's benefit each month), it's responsible for keeping approximately 15.3 million retired workers above the federal poverty line. More than three out of five of these aged beneficiaries currently lean on the program to provide at least half of their monthly income.
Social Security is facing its biggest challenge in eight decades
But Social Security is also a program facing a steep uphill climb in the coming decades, as foretold by the latest annual report from the Board of Trustees.
Contained in the report is a prediction that Social Security will expend more than it collects this year for the first time since 1982. With the exception of a sight reprieve in 2019, this net cash outflow is expected to really begin surging in 2020 and beyond. After an estimated 16 years of outflows, Social Security's $2.89 trillion in excess cash is expected to be gone.
The silver lining here for seniors, if there's one to be found, is that Social Security is in absolutely no danger of going bankrupt and disappearing, even if the program's excess cash could soon vanish. Thanks to its two sources of recurring revenue -- the 12.4% payroll tax on earned income up to $128,400 (as of 2018) and the taxation of benefits -- Social Security will still be collecting plenty of revenue that can be disbursed to eligible beneficiaries.
The downside of the trustees' outlook is that it clearly shows the unsustainability of the current payout schedule. If Congress doesn't raise any additional funds, then-current and future recipients could be facing an across-the-board cut to benefits of up to 21% by 2034. That's a dismal forecast given the noted reliance on Social Security by seniors.
President Trump's Social Security strategy has changed dramatically over the last 18 years
However, President Trump believes he has the perfect "fix" for Social Security. Rather than making any direct amendments to the program, he believes that boosting economic growth is the best course of action. By passing and signing into law the Tax Cuts and Jobs Act, thereby lowering peak corporate income tax rates and individual taxpayer liability, Trump aims to increase overall employment and wages. This should lead to added payroll tax collection and improve at least the short-term health of Social Security.
But what you may not realize is that Trump's solution to resolve Social Security's problems has evolved quite a bit over time. In 2000, when his book, The America We Deserve, was first published, he offered a markedly different means of paying off the national debt and, subsequently, fixing Social Security's long-term cash shortfall.
Often touted as a president that's gone to bat for the 1%, Trump suggested the idea of introducing a one-time tax of 14.25% on the highest income earners in his book. Back in 2000, this tax would have raised an estimated $5.7 trillion, which would have allowed the country's national debt to have been completely paid off. In turn, it would have saved $200 billion a year in interest payments. Trump suggested that $100 billion of savings be funneled into tax cuts for middle-class families for a decade, with the other $100 billion going into the Social Security Trust, providing it long-term solvency.
Here's the excerpt from The America We Deserve:
I would impose a one-time, 14.25% tax on individuals and trusts with a net worth over $10 million. That would raise $5.7 trillion in new revenue, which we would use to pay off the entire national debt. We would save $200 billion in interest payments, which would allow us to cut taxes on middle-class working families by $100 billion a year or $1 trillion over ten years. We could use the rest of the savings -- $100 billion -- to bolster the Social Security Trust Fund. By 2030, we [will have] put $3 trillion into the trust Fund, which would make it solvent into the next century.
Social Security needs a direct, bipartisan fix
Of course, a 14.25% one-time tax on folks with over $10 million in wealth today probably wouldn't come close to paying off our national debt, which stands at more than $21 trillion, or buoying Social Security over the long run. Nor is it an idea that Trump would be likely to support, especially after passing a major tax cut for all income brackets in December 2017.
If Social Security is going to be fixed, the solution is almost certainly going to need to be direct (i.e., an amendment to the existing law), and, for reasons discussed previously, it's going to need to offer core solutions from both political parties. That means the addition of new revenue by requiring the wealthy to pay more into the system, as well as lifetime benefit reduction via gradual increases to the full retirement age for future generations of retired workers. This solution, rather than a one-time tax, should put Social Security on solid financial footing.