There's no question that this has been a chaotic year like no other before it. The coronavirus disease 2019 (COVID-19) pandemic has killed almost 135,000 Americans, as of last weekend, and it displaced more than 20 million workers during the nonessential-business shutdowns in most states.
But amid this chaos, we can't lose sight that it's also an election year. Every seat in the U.S. House of Representatives and a third of the seats in the Senate are up for a vote in the November election. But it's the race for the Oval Office between Republican Party incumbent Donald Trump and Democratic Party challenger Joe Biden that's garnering much of the attention.
The president will be tasked with fixing a broken Social Security program
Whoever wins the November presidential election will be tasked with tackling a number of key issues, including the ongoing COVID-19 response, reigniting economic growth, and immigration. But it's the nation's most successful social program, Social Security, which arguably deserves a lot of attention.
Social Security has been a financial rock for seniors over the past eight decades and is responsible for pulling over 15 million retirees out of poverty every year. However, the latest report from the Social Security Board of Trustees finds that the nation's storied program is facing a huge funding shortfall over the next 75 years.
How could this happen? Let's just say that it's not solely due to baby boomers retiring in greater numbers. Rather, there are more than a half-dozen demographic changes at play, including increased longevity, lower birth rates, reduced net legal immigration, and even rising income inequality, to name a few.
Because of these changes, Social Security's more than $2.9 trillion in asset reserves (i.e., its net cash surpluses built up since inception) are estimated to be completely exhausted by 2035. If this excess capital is gone, sweeping benefit cuts of up to 24% may be passed along to then-current and future retired workers to keep the program solvent.
If you're curious as to just how bad things have gotten for Social Security, the latest Trustees report estimated a $16.8 trillion (yes, with a "t") cash shortfall between 2035 and 2094. Whether challenger Joe Biden wins in November or incumbent Donald Trump is successful in seeking a second term, the president will be looked upon to fix what appears to be a broken Social Security program.
Both candidates' views on Social Security have changed considerably over time
Interestingly, both candidates' views on Social Security have evolved quite a bit over the past couple of decades.
Donald Trump, for example, once supported the idea of partially privatizing Social Security. Privatization involves setting aside a portion of income derived from the payroll tax into a separate account that a worker would be able to invest as they saw fit. In his book, The America We Deserve, Trump suggested that offering workers an opportunity to invest a portion of their future retirement benefits would be a value creator for the stock market and a shot in the arm of growth for the U.S. economy. Trump has since distanced himself from the idea of privatization.
Trump also called for a one-time wealth tax on individuals with a net worth of over $10 million in The America We Deserve, with half of the proceeds from this tax to be used to strengthen Social Security's asset reserves. It's fair to say that Trump supports no such tax on the wealthy today.
Then there's Joe Biden. On a couple of occasions over the past two decades, he's implied that he'd be OK with the idea of cutting Social Security benefits as part of a larger package to strengthen the program. Reducing benefits in any way goes against core Democrat ideology when it comes to Social Security. As of late, Biden has taken a tone that conveys a desire to expand Social Security benefits for current and future retirees.
A sad Social Security truth
On the surface, it would appear that whoever wins the November election has a plan to strengthen the Social Security program. But there's just one problem. The sad truth is that -- short of a supermajority in the Senate (i.e., 60 seats belonging to the same party) -- nothing is probably going to get done on the Social Security front no matter who wins.
You might be asking yourself why it's so difficult to reform the Social Security program when there are countless proposals to do so on Capitol Hill. The first issue you'll run into is political hubris. This is to say that both parties have a core solution to strengthen Social Security, and both solutions work. Ergo, neither party views it as necessary to back down from their stance and work with their opposition to find common ground. This leads to a stalemate in the Senate, where 60 votes are required to amend the Social Security Act.
Another conundrum is that there's no way to strengthen the Social Security program without some group of people ending up worse off. For instance, if Democrats had their way and taxation increased on the well-to-do, then upper-income Americans would be required to pay more into the program without a commensurate increase in their retirement benefit.
Comparatively, if Republicans gradually increased the full retirement age, future generations of workers, such as millennials, would receive less in lifetime benefits from Social Security. Because every fix involves some group of people ending up worse off than they were before, it could lead to the majority party getting voted out of office during the subsequent election. Thus, lawmakers are gun-shy about seriously tackling Social Security reform.
There's little question that something needs to be done about Social Security, as we're an estimated 15 years away from the need for big benefit cuts. But the reality of the matter is the November winner, whether it's Biden or Trump, has an almost impossible task of unifying lawmakers in Washington to pass Social Security reform.
I'm afraid the can will be kicked down the road for another four years, no matter what happens in November.