In case you haven't heard, America's most important social program, Social Security, is in a bit of trouble. A number of ongoing demographic changes have Social Security on track to completely exhaust its $2.9 trillion in asset reserves (i.e., net-cash surpluses built up since inception) by 2035. Should this happen, Social Security wouldn't be bankrupt, but it would mean sweeping benefit cuts to then-current and future retired workers of up to 23%.
Social Security needs a fix, and it's lawmakers on Capitol Hill who will have to deliver that resolution. That's why it's more important now than ever to know where the leading 2020 presidential candidates stand on Social Security. Today, we'll take a closer look at incumbent Republican Donald Trump's viewpoints on Social Security.
How did Trump view Social Security while campaigning in 2015-2016?
The first aspect of Donald Trump's stance to tackle is how he stood on America's top social program while on the campaign trail prior to being elected the 45th president. In general, Trump views the federal government making good on payouts to workers who've paid into the program for decades as "honoring a deal," as he put in his book Time to Get Tough (2011).
What's more, the president has advised his fellow Republicans to approach the issue cautiously. While speaking at the Conservative Political Action Conference in 2013, Trump said the following:
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.
In other words, Trump understands that if direct resolutions are made to Social Security (and other entitlement programs), some groups of people are going to be worse off than they were before. That makes direct fixes to the program a dangerous game to play when nearing an election.
What has Trump done to tackle Social Security's cash shortfall during his first three years in office?
So, what has Donald Trump done to improve Social Security while in office? With the president clearly averse to tackling the issue directly and potentially losing votes, Trump has instead focused his efforts on indirect solutions, the most notable of which is the passage of the Tax Cuts and Jobs Act (TCJA).
When signed into law in December 2017, the TCJA represented the most sweeping tax overhaul in the U.S. in over three decades. It lowered the tax liability of most working Americans, while capping the marginal corporate income-tax rate at 21%, down from a peak of 35%. In essence, it was a tax cut designed to stimulate economic growth by encouraging businesses to innovative, hire, and expand, as well as encourage consumer spending.
How does this help Social Security, you ask? The program has three sources of funding: a 12.4% payroll tax on earned income, the interest income earned on its asset reserves, and the taxation of benefits. The former, the payroll tax on earned income of up to $137,700 (in 2020), is the program's workhorse. In 2018, it was responsible for $885 billion of the $1 trillion in revenue collected. The thinking here is that if tax cuts can bolster economic growth, workers should see an increase in wages and/or income, leading to more payroll tax being collected. This increase in payroll tax collected should put Social Security on better financial footing.
If you're curious, the TCJA does appear to have had a very modest upward lift on the U.S. economy and Social Security over the past two years. For example, the 2018 Social Security Board of Trustees report had called for the program's first net-cash outflow since 1982 that year, but this forecast was ultimately proved wrong, with Social Security generating a net-cash surplus of $3 billion. Similarly, the program's net-cash surplus of a little over $2 billion in 2019 was slightly higher than the $1 billion net-cash surplus the Trustees report had projected for last year.
How would Trump approach "fixing" Social Security if reelected to a second term?
Now for the big question: What happens to Social Security if Donald Trump is reelected as president?
While no one knows this answer with any certainty, we've been given a number of clues during his presidency to make logical guesses. Perhaps the biggest clue came in January 2020 at the World Economic Forum in Davos, Switzerland. In an interview on CNBC's Squawk Box, host Joe Kernen asked Trump if "entitlements [would] ever be on your plate?" to which the president replied, "At some point they will be."
To be crystal clear, this doesn't mean that Trump has decreed Social Security spending cuts are coming. However, it does raise eyebrows given the contrasting nature by which Democrats and Republicans have approached fixing Social Security's imminent cash shortfall.
For instance, Democrats have predominantly been in favor of increasing revenue by raising or eliminating the earnings cap associated with the payroll tax. In 2020, all earned income (wages and salary) between $0.01 and $137,700 is subjected to the payroll tax, with earnings beyond $137,700 exempted. Raising or eliminating this cap would require the well-to-do to pay more into the system.
Meanwhile, Republicans have predominantly championed reducing long-term outlays (a fancy way of saying "cutting benefits"). The GOP has proposed gradually raising the full retirement age from 67 to as high as age 70 to account for increased longevity over the past eight decades. If the full retirement age were raised, future generations of retirees would either need to wait longer to claim their full monthly payout or accept a steeper reduction if claiming early. The point is that, no matter their choice, lifetime benefits paid by Social Security would be reduced, thereby saving the program money.
While Trump hasn't specifically mentioned raising the full retirement age, he and his administration have suggested amending the rules for the Social Security Disability Insurance (SSDI) program. In Trump's fiscal 2020 budget proposal, for example, Trump proposed cutting $26 billion from Social Security over a 10-year period. A good portion of this reduction ($10 billion) was to be made by cutting back SSDI retroactive pay to six months from 12 months.
Again, while Trump has not specifically said that spending cuts are going to happen, there is a good likelihood that outlay reductions would be how Trump would tackle Social Security's imminent cash shortfall.
Trump has tossed around a number of surprising solutions
Of course, it's also important to understand that Trump's views on Social Security have changed considerably over time, and he has, on occasion, tossed around a number of ideas that you may find surprising.
Back in 2000, in his book The America We Deserve, Trump proposed the idea of a one-time 14.25% tax on individuals with a net worth of more than $10 million. In Trump's view, this one-time tax would have allowed the federal government to collect enough revenue to pay off its national debt (at the time), saving it $200 billion annually on interest payments. Trump proposed taking $100 billion of this $200 billion in annual savings and adding it to the Social Security program over a 10-year time frame.
Donald Trump has also loosely tossed around the idea of means-testing for benefits. Means-testing would partially reduce or eliminate Social Security benefits once an individual or couple crosses above a preset earnings threshold. Since Social Security was designed to predominantly protect low-income workers during retirement, such a move would ensure that the rich aren't receiving payments they don't need.
Trump even once offered up the idea of partially privatizing Social Security -- a view he now steers clear of. In The America We Deserve, Trump suggests that workers have the option of utilizing personal accounts to invest in stocks, bonds, diversified mutual funds, and bonds funds.
The point being that Trump may be more open to a middle-ground solution than most folks realize.
Additionally, it should be noted that the political makeup of Congress is going to play a big role as to whether or not major Social Security reforms are pursued. Without significant Republican gains in the House or Senate, Trump's push for direct reforms, assuming a successful reelection, would likely fall on deaf ears.