The grim reality of President-elect Donald Trump's Social Security plan

Not all social security proposals are necessarily winning.

For most retirees, Social Security provides more than just a check each month. America's best retirement program represents a financial lifeline without which many beneficiaries would struggle to live.

For the past 23 years, the national pollster Gallup has surveyed retirees to gauge the role their Social Security income plays. Over the 23 years, between 80% and 90% of respondents reported that their Social Security check represented a “major” or “minor” source of income, including 88% in 2024. In other words, benefits social security are necessary for an overwhelming majority of those questioned. majority of retirees to make ends meet.

Social Security's financial well-being is paramount to the success of our nation's aging workforce. Unfortunately, this financial base has been deteriorating for decades. Current and future beneficiaries will look to their elected officials to tackle Social Security's problems — and that includes President-elect Donald Trump.

However, not all Social Security proposals are necessarily winning, as you will see.

Former President and President-elect Donald Trump delivers remarks. Image Source: Official White House Photo by Andrea Hanks.

Social Security benefit cuts could be just nine years away

Every year since the first benefit check was mailed to retired workers in January 1940, the Social Security Board of Trustees has released a report detailing the financial health of this leading social program. Since 1985, the trustees' report had warned of a long-term funding gap.

In simpler terms, administrators do not see enough revenue collected by Social Security in the 75 years after a report is issued to satisfy expected expenses, including cost-of-living adjustments (COLAs). The 2024 Social Security Board of Trustees report pegged the program's unfunded obligations at a staggering $23.2 trillion (and growing) through 2098.

Worse still, the Old-Age and Survivors Insurance Trust Fund (AVS), responsible for distributing monthly payments to retired workers and surviving beneficiaries, is expected to exhaust its asset reserves by 2033. Although this, fortunately, will not is not the case. This does not mean that Social Security will be insolvent or bankrupt — Social Security cannot go bankrupt based on how it currently generates revenue — it portends sweeping benefit cuts of up to 21 % in nine years if nothing is done.

Although some people on social media message boards are often quick to (wrongly) blame “stealing from Congress” or “undocumented workers” for what ails Social Security, ongoing demographic changes are what really harms this vital program.

In no particular order, Social Security's struggles can be attributed to a combination of:

Baby boomers are leaving the labor market in greater numbers, which is weighing on the worker/beneficiary ratio. Increased lifespan (Social Security was never designed to distribute benefits to retirees for decades). A historically low birth rate, which will ultimately weigh on the worker/beneficiary ratio. A decrease of more than half in net legal immigration to the United States since 1998 (Social Security relies on a constant influx of legal immigrants to increase payroll tax collections). Growing income inequality, with a higher percentage of earned income escaping the payroll tax over time. The grim reality: Donald Trump's Social Security plan only makes things worse

Most lawmakers have avoided tackling Social Security's visible problems because there is no way to fix the program without making at least some beneficiaries worse off. But presidential candidates aren't so lucky and are widely expected to have a game plan for America's most important retirement program.

During President-elect Trump's campaign, he made two proposals regarding Social Security. The sad reality is that neither the program nor its beneficiaries would be useful in the long term.

The first proposal put forward by the new president is to effectively leave social security alone. Getting the package back on the road has been the status quo of several administrations, and Trump supported the idea earlier this year by proclaiming that “you don't have to touch Social Security.”

However, administrators' reports have made it clear that doing nothing is a terrible plan. While kicking the can may spare politicians from public finger-pointing, it will not stop the program's funding gap from growing or have a positive impact on asset reserves. of the AVS, which are about to be exhausted in less than a year. a decade.

Image source: Getty Images.

Ending benefit taxation could accelerate the need for sweeping benefit cuts

President-elect Donald Trump's other, more forward-thinking proposal is to eliminate taxation of Social Security benefits. He loudly proclaimed this position on the social media platform Truth Social in July, declaring, “Older people shouldn't pay Social Security taxes.”

This is a proposal that has enormous support from retirees, mainly because it is probably the most hated tax in America. But getting rid of this tax when the financial situation of Social Security is precarious to say the least would be a serious mistake.

When Social Security's asset reserves were dangerously low in 1983, Congress passed and then-President Ronald Reagan signed the Social Security Amendments of 1983. This latest bipartisan overhaul of America's main retirement program gradually raised the full retirement age and payroll taxes for workers, and also established federal taxation of Social Security benefits.

Starting in 1984, up to 50% of benefits could be taxed at the federal rate if provisional income (adjusted gross income + tax-free interest + half of benefits) exceeded $25,000 for a single filer or $32,000 for a couple filing jointly. In 1993, the Clinton administration added a second tier, allowing up to 85% of Social Security benefits to be exposed to federal tax if the provisional income of a single filer or a couple filing jointly exceeded 34 $000 and $44,000, respectively.

The problem with the taxation of social security benefits – apart from the mistaken belief that it is a form of double taxation – is that these provisional income thresholds have not been adjusted since their introduction respectively ago four and thirty years old. But because Social Security spends more on benefits each year than it generates in revenue, eliminating one of its three revenue streams would be a big mistake.

Taxing benefits is projected to generate $943.9 billion in cumulative revenue for Social Security from 2024 to 2033. Eliminating this tax would put Social Security in a significantly worse financial position and could accelerate the timeline for sweeping benefit cuts. services.

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