For nearly eight decades, Social Security has made guaranteed monthly payouts to eligible beneficiaries, many of which are retired workers. Today, it's a program responsible for lifting over a third of its recipients above the federal poverty level. In particular, it keeps over 15 million seniors out of poverty who might otherwise struggle to make ends meet without their monthly stipend.
Then again, Social Security is also a program that's skating on thin ice, at least according to the 2018 report from the Board of Trustees.
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Social Security is facing an imminent cash crunch
Since its inception, the Social Security Board of Trustees has provided a comprehensive annual report detailing the short-term (10 year) and long-tem (75 year) outlook for the program. Despite a major bipartisan overhaul in 1983 under the Reagan administration, the trustees' report has been warning of a cash shortfall over the long run since 1985. This cash shortfall implies that the existing payout schedule isn't sustainable without additional revenue, expenditures cuts, or some combination of the two.
Possibly beginning in 2019, or very soon thereafter, the program will hit its inflection point of expending more than it's collecting. Once this net cash outflow begins, it's expected to widen with each passing year, ultimately leading to the depletion of Social Security's nearly $2.9 trillion in asset reserves by 2034. If Congress fails to act, an across-the-board benefit cut of up to 21% may be needed to sustain payouts through 2092. And since more than three out of five of today's retired workers lean on Social Security for at least half of their monthly income, this is a scary outlook.
It's for these reasons that the American public has called on Congress and President Trump to resolve Social Security's projected $13.2 trillion cash shortfall. The big question is: Has Donald Trump enacted policies to strengthen Social Security?
The answer depends on your time frame.
President Trump signing paperwork at this desk in the Oval Office. Official White House photo by Shealah Craighead.
Trump's indirect approach has made Social Security stronger in the very short term
Whereas most working and retired Americans would prefer direct changes to Social Security, President Trump has advocated against directly amending the program.
While speaking at the Conservative Political Action Conference in 2013, Trump suggested that directly amending Social Security is akin to political suicide, without using those exact words. Trump understands that one of the consequences of directly altering Social Security is that some group of people, whether it be the wealthy or future retirees, are going to be worse off than they are now, and that could mean losing votes come the election time.
Instead, Trump has approached strengthening Social Security through indirect action. More specifically, the passage of the president's Tax Cuts and Jobs Act (TCJA) was, to some degree, targeted at improving Social Security's financial health. Since nearly 88% of the revenue collected by the program is derived from the payroll tax, the TCJA's focus on creating jobs, lifting wages, and improving economic growth, is expected to increase the amount of wages subject to the payroll tax each year.
The question is: Did this happen?
In the very short term, and with the full impacts of the TCJA yet to be analyzed, Trump's fiscal policy does appear to have helped strengthen Social Security. In 2018, the trustees had been calling for a net cash outflow of $1.7 billion from asset reserves. Instead, close to $3.2 billion in net cash surplus was added to the reserves last year as GDP growth topped 2% in every quarter.
President Trump delivering remarks at the Pentagon. Image source: Official White House photo by Tia Dufour.
The president's fiscal policy isn't helping Social Security one iota over the long run
However, tinkering with fiscal policy is no solution to Social Security's $13.2 trillion cash shortfall. Even with a temporary boost to economic growth, we know that GDP growth slowdowns and recessions are a natural part of the economic cycle. This means that the payroll tax and wage boost that lifted Social Security's revenue collection in 2018 isn't sustainable over a long period of time.
The fact of the matter is that the longer President Trump and Congress hold off on passing direct fixes to the program, the costlier and more painful it'll be on working Americans.
The cost to fix Social Security is expressed by the trustees' report as the "actuarial deficit." The actuarial deficit represents the percentage increase needed in the payroll tax on earned income today to completely offset the coming $13.2 trillion cash shortfall between 2034 and 2092, as well as ensure that enough money is leftover come 2092 to fully cover expenditures for 2093 (i.e., a trust fund ratio of 100%).
Today, 12.4% of earned income between $0.01 and $132,900 is subject to the payroll tax, with earned income above this amount exempt. In 2018, the actuarial deficit was estimated at 2.84%. Essentially, the trustees have implied that a 15.24% payroll tax (12.4% plus 2.84%) is needed on earned income to sustain the existing payout schedule, without any further cuts, through 2092. But the longer lawmakers wait, the higher this actuarial deficit goes. And the higher this deficit goes, the more working Americans will have to pay into Social Security to right the ship.
In sum, since no amount of fiscal or monetary policy can keep economic growth from slowing or entering a recession, Trump hasn't done anything to strengthen Social Security over the long run. The TCJA is a temporary fix that worked in 2018, but direct resolutions are going to be needed if the program is going to truly be strengthened for current and/or future generations.
