Please ensure Javascript is enabled for purposes of website accessibility

Trump's Plan to Strengthen Social Security Involves Cutting Disability Benefits

By Sean Williams - Jan 18, 2020 at 6:06AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Though the president has mostly focused his efforts on improving the U.S. economy, the door for Social Security cuts has been left open.

Social Security, America's top social program, is in some pretty big trouble.

Every year, the Social Security Board of Trustees releases a report that examines the short-term (10-year) and long-term (75-year) outlook for the program. Since 1985, just two years after the last bipartisan overhaul of Social Security, the trustees have cautioned that the long-term outlays of the program would outpace its incoming revenue. In other words, the trustees have raised the red flag that Social Security's $2.9 trillion in asset reserves (i.e., its net-cash surpluses built up since inception) could be completely gone very soon.

By the latest projection, the program's asset reserves will be exhausted by 2035, which could lead to a cut to retired worker benefits of up to 23%. That's a problem when roughly a third of current retirees are almost wholly reliant on Social Security for their income.

Fixes are needed, and President Donald Trump hasn't shied away from offering his take.

President Trump giving remarks in the White House from behind the presidential podium.

Image source: Official White House Photo by Shealah Craighead.

Trump has mostly focused on indirect solutions to improve Social Security

For the most part, Trump has cautioned that direct fixes to the Social Security program are akin to political suicide. Before becoming president, Trump had this to say at the Conservative Political Action Conference (CPAC) 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.

Understanding that direct fixes to the program would leave some group of folks worse off than they were before, Trump has generally avoided flashy direct solutions. Rather, he's primarily focused his efforts on improving the U.S. economy.

The passage of the Tax Cuts and Jobs Act (TCJA) is a prime example, with the expected growth from the TCJA expected to lead to higher payroll tax collection. The 12.4% payroll tax on earned income is Social Security's workhorse, providing $885 billion of the $1 trillion collected in 2018. In each of the past two years, Social Security's net-cash surplus has come in slightly ahead of the trustees' expectations, suggesting that Trump's tactics have, at least in the very short term, played a role in staving off the inevitable.

Scissors cutting a one hundred dollar bill in half.

Image source: Getty Images.

The president's plan to strengthen Social Security involves tightening SSDI's belt

It's also clear that indirect solutions are a temporary fix to a $13.9 trillion problem that just keeps growing. Knowing this, we've also begun to see policy proposals introduced over the past year from the Trump administration that would directly aim to reduce Social Security program outlays over the next decade. More specifically, these proposals are targeted at minimizing Social Security Disability Income (SSDI) outlays.

For example, the president released his fiscal 2020 budget proposal for the federal government on March 11, 2019 (the federal fiscal year ends on Sept. 30). Presidential budget proposals are almost always talking points that begin discussion in Congress, but rarely do they offer any meat on the bone in relation to a final spending bill. That, nevertheless, didn't stop Trump from facing harsh criticism after his call to implement changes to the Social Security program that would reduce outlays by $26 billion over the next decade.

Though the president's proposals were aimed at reducing inefficiencies with the program, a significant portion of the savings ($10 billion in total over 10 years) was to be realized from changing a single SSDI rule. This rule change would reduce the amount of retroactive pay disabled workers could recover to six months from 12 months, thereby saving $3.6 billion over the first five years and $10 billion by 2029.

A visibly surprised senior man tightly clutching his piggy bank as outstretched hands reach for it.

Image source: Getty Images.

But this wasn't the last we heard from the Trump administration on SSDI benefit reductions. This past November, another rule change was proposed that would make medical reviews more common for some of the 8.4 million workers currently receiving a Social Security disability benefit.

Right now, applicants for SSDI have their chance of medical improvement placed into one of three categories -- expected, possible, or not expected -- with medical reviews for the first two categories of applicants being conducted within 18 months and three years, respectively. The new Trump administration proposal wants to create a new category, "medical improvement likely," which would trigger a medical review every two years. The expectation here is that more workers would be removed from the SSDI program and pushed back into the labor force, ultimately saving $2 billion in SSDI outlays over 10 years. Of course, the increased frequency of reviews would eat up $1.8 billion of "savings" over the decade. 

The point is, SSDI cuts appear to be very much in Donald Trump's playbook as a means of improving Social Security's long-term outlook.

A judge's gavel lying atop two Social Security cards, with an American flag in the background.

Image source: Getty Images.

Here's why SSDI cuts are highly unlikely (at least anytime soon)

However, just because proposals meant to reduce SSDI outlays are on the table, it doesn't mean they're going to be implemented. In fact, the chance of Trump actually getting either of these SSDI proposals passed into law is virtually zero at the moment.

For one, the current party breakdown in Congress is unlikely to lead to any resolutions on Social Security. Democrats have a majority in the House and would unquestionably reject any proposal that would reduce SSDI payouts. And even if, by some miracle, one or both of these proposals reached the Senate, it's unclear if there would be enough bipartisan support to get a bill to Trump's desk for his signature.

Secondly, we're in the midst of an election year, and there's no chance that President Trump would risk losing votes by highlighting a proposal that would cut Social Security benefits. Should he win a second term, the idea of reducing program expenditures is probably on the table. But for the time being, he's likely to follow his own advice offered at CPAC in 2013 and avoid direct solutions entirely.

Third, and finally, even if the Trump administration sought unilateral rule changes without consulting Congress, a lawsuit would almost certainly be filed to stop it from being implemented, leading to a drawn-out legal battle.

On one hand, the 8.4 million disabled workers currently receiving SSDI can breathe a sigh of relief in the short term. But should Trump be re-elected, a battle could begin brewing, with disability benefits clearly in the crossfire.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.