Social Security is our country's most important social program, with an estimated 22.1 million people being kept out of poverty as a result of the guaranteed monthly payout received by eligible beneficiaries (many of whom are senior citizens). Without this income, the poverty rate for elderly Americans would probably be a lot higher.
Yet, the program is also contending with serious issues that leave its future in question.
Are Social Security cuts in the cards?
According to the newest annual report from the Social Security Board of Trustees, the program is expected to expend more than it collects in revenue for the first time in 36 years this year. Although this net cash outflow will start out relatively small, it'll grow considerably in 2020 and beyond. The $2.89 trillion currently in asset reserves is projected to be gone by the time 2034 rolls around, per the Trustees.
The silver lining here is that Social Security is in absolutely no danger of going bankrupt. Even if the program were to lose one of its three sources of income -- the interest income from asset reserves -- it would retain its two sources of recurring revenue, which include the 12.4% payroll tax on earned income of up to $128,400 (as of 2018) and the taxation of benefits. These recurring sources of income, which simply require that Americans keep working, made up 91.5% of the $996.6 billion collected by Social Security in 2017.
The downside is that a net cash outflow from the program signifies the unsustainability of the current payout schedule. In order to keep the program solvent through 2092, without the need for any further reductions, a benefit cut of up to 21% may be needed, according to the report.
Trump preaches a hands-off approach
There's no doubt in the minds of lawmakers that Social Security is facing an uncertain future. In every report since 1985, the Trustees have noted that the program doesn't have enough revenue to meet its expenditure obligations over the next 75 years. President Trump, however, firmly believes that indirect fixes are the right approach.
During his presidential campaign and since taking office, Trump has repeatedly suggested that direct amendments to Social Security are off the table. More specifically, altering Social Security in any way would cause some group of folks to lose out, and Trump believes that such an outcome would lead to backlash against the party that passed such amendments.
Rather, Trump favors the idea of promoting economic growth, which would influence Social Security by boosting payroll tax collection. The passage of the Tax Cuts and Jobs Act in December 2017 permanently cut peak marginal corporate income tax rates, as well as individual tax rates for most working Americans, providing a perceived boost to U.S. GDP growth and employment. Though not a long-term solution, it could provide the program with added payroll tax revenue in the near term.
New Chief of Staff Mick Mulvaney isn't afraid to suggest cuts
However, Trump's hands-off approach to Social Security could come under fire from within the Oval Office. That's because on Friday, Dec. 14, 2018, it was announced that now-former director of the Office of Management and Budget, Mick Mulvaney, will be taking over as Trump's chief of staff.
Although a chief of staff isn't going to be directly involved in policymaking, Mulvaney will be a voice in the president's ear at all times. In the past, Mulvaney, a fiscal hawk, has advocated for a balanced federal budget, and hasn't been shy about suggesting that so-called entitlement programs, which includes Social Security, should be on the table as a possible option for expenditure cuts.
Back in 2011, Mulvaney introduced the Balancing Our Obligations for the Long Term Act, or BOLT Act. The BOLT Act, if signed into law, would have required the federal government balance its budget via a reconciliation of long-term savings in entitlement programs. In particular, it called for increasing Social Security's full retirement age. Your full retirement age being the age at which you become eligible to claim 100% of your retirement benefit, as determined by your birth year.
Why raise the full retirement age, which is currently set to peak at 67 for those born in 1960 or later? The simple answer is that it would require future generations of retirees to either wait longer to claim their full benefit or to accept a steeper reduction in their monthly payout if claiming early. Either way, it would reduce the amount of lifetime benefits paid to future generations of retired workers, thereby saving the program money and reducing its long-term cash shortfall.
Does this mean Trump will change his tune on Social Security with Mulvaney as his chief of staff? Well, no, it doesn't. But having an ardent fiscal hawk as Trump's right-hand man should raise an eyebrow or two for those folks destined to receive a Social Security retirement benefit in a few decades' time.