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What the Trump presidency could mean for Social Security

12/07/2016

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By Frank Cardenas, guest blogger

There’s always a level of uncertainty in elections; however, it’s safe to say this one has broken all previous political molds. Some are excited for the revolution a Trump presidency promises to bring; others fear the insecurity and brazenness of it.

Certainly though, everyone is waiting to find out what exactly will be different and how. How will the President-elect deal with Social Security, a program that has been honored for so long and that so many depend on?

It’s perhaps safe to assume that nothing radical could be done too quickly. After all, Trump has recoiled on his earlier campaign statements about privatizing Social Security and replaced them with more secure statements about honoring a deal to the American people. Early campaign rhetoric gave vague insight about a Trump administration’s stance on Social Security. Though still vague, latest inquiries into his stance on the issue have revealed Trump continues to support his stance on continuing to meet obligations to support the Social Security beneficiaries.

However, inconsistencies recently arose by selections the Trump administration made in appointing key members to his cabinet — and those close to his Presidency — who contradict Trump’s earlier campaign views and promises when it comes to Social Security. Speaker of the House Paul Ryan has long pushed for partial privatization of the program — which could ultimately cut Social Security benefits but would allow some other private avenue for retirement investing.

The man appointed to head Trump’s Social Security transition team is Michael Korbey, who has spent much of his career advocating for privatization of the program. Appointing Korbey is another example of the dissonance between the platform Trump has conveyed to his supporters and the people he has appointed to lead his transition into office. Over the last decade, we have heard numerous efforts to secure the program’s longevity or to quasi-privatize the program and both sets of ideologies have lingered into oblivion.

What we do know for certain is that according to the Social Security statistics released in November, there are roughly 60 million Americans who are utilizing these benefits. The problem lies in the solvency of this program. When the Social Security Act was first signed into law in 1935 and payroll taxes started to come out in 1937, we had a lot less of an aging population (less than 1 percent according to 1940 census estimates). Today, we have about 18 percent of the U.S. population receiving Social Security benefits. Couple that with baby boomers who are reaching retirement age at 10,000 people per day, and we begin to understand that we have more money going out the door than we have coming into the trust fund.

We have long heard that the payroll tax, where the benefits are derived, supply the benefits that these 60 million people receive today. According to the Social Security Trustee report released in July of this year, the predicted solvency of this fund is the year 2034. This doesn’t mean that Social Security benefits run out in 2034 but that the fund will only be able to pay beneficiaries 79 cents on the dollar of their promised benefits.

So how do we ensure viability of the trust fund?

Though there are several perspectives on how to solve the problem, with two options standing at the forefront. The first option is to secure the retirement fund for the long-term by raising the Social Security payroll tax. Currently, up to $118,000 of an individual’s annual earned income is taxed toward their contribution into the retirement fund. One proposition would be to increase that amount to $150,000 or more. Other policy proposals suggest raising the full retirement age from 66 years of age for those born after 1955 or by having a means-tested policy change, which would only allow those who are fully retired to start their benefits — noting that 75 percent of Americans over the age of 65 are still working.

Currently, if you have reached your full retirement age and are still working, you may start to receive your retirement benefits with no stipulation on how much you are earning. If a means-tested policy were enacted it would make those who continue work into their 60s unable to draw benefits until their earned work income falls below a certain amount (as it is now for those who choose to draw benefits prior to reaching their full retirement age). Given that the program is being funded by middle-aged workers to support those who are currently receiving benefits, this is a viable option to ensure the trust fund beyond 2034.

The other not so quantifiable option would be to simply raise more revenue from the payroll tax by supplying more jobs in the economy. More jobs would supply more into the payroll tax and thus ensure viability of the fund beyond 2034. This is a suitable option if there is a continual increase in the economy of new jobs that would pay more into the fund. This is the uncertain but possible part of the solution. It would, however, take a dramatic increase in jobs to rely on this hypothesis alone.

These issues have long been at the helm of recommendations from the Social Security administration. This year’s Trustee report explains, “Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”

The jury remains undecided on how Social Security will unfold under Trump’s presidency and whether or not it will affect current beneficiaries and soon-to-be beneficiaries. Small relief may be found in the fact that any immense changes or cuts to the system, logistically, would be a great feat. Any modifications of Social Security policies and laws that could jeopardize current and promised benefits would have a challenging time passing through our legislative system.

Frank Cardenas holds a master’s degree in public administration, a master’s certification in health administration and planning, and currently serves as vice chair of government affairs for Fifty Forward and chair of the Nashville Farmer’s Market board. Cardenas is president of FEDlogic, an independent consulting firm that educates company’s employees on how to maximize federal benefits, primarily with Social Security, retirement, disability, Medicare, Supplemental Social Security Income benefits, and spousal, widow’s and children’s benefits. He works closely with LBMC Employment Partners through the LBMC PEO for retirement transition support and can be reached at 615-830-4630 or frank@fedlogicgroup.com.

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