One of the first things awaiting Donald Trump when he officially enters the White House is an entitlements time bomb: Social Security has a looming $11 trillion shortfall
Trump has said he will preserve Social Security, “though if he and Congress do nothing to fix the funding, the financial reckoning will be huge — as much as $11.4 trillion down the road,” CNBC reported.
The last time Congress changed Social Security in a significant way with a series of benefit cuts and payroll tax increases was in 1983 under President Ronald Reagan, CNBC reported.
"Just to keep the system afloat from year to year at that point they would have to inflict near-term pain over three times as severe as was the case in 1983," Charles Blahous, a senior research fellow at George Mason University's Mercatus Center, told CNBC.
The Trump transition team has yet to reveal their Social Security strategy. However, one Republican lawmaker has detailed how he would change it.
Congressman Sam Johnson, an 86-year-old Texan who represents the Dallas suburbs and is chairman of the House Ways and Means Social Security Subcommittee, unveiled a bill in December in the last Congress that aims to fix the program without raising payroll taxes.
Johnson's proposal would increase the age to receive full retirement benefits from 67 to 69, slow the growth of benefits by using a different measure of inflation for cost-of-living adjustments and cap payouts to high-income workers.
"I urge my colleagues to also put pen to paper and offer their ideas about how they would save Social Security for generations to come. Americans want, need and deserve for us to finally come up with a solution to saving this important program," Johnson said in a statement.
While Social Security is essentially very ill, it can be debated whether or not it's a fatal diagnosis.
To be sure, Motley Fool recently put the situation in perspective for all savvy investors who may be worried.
"First, the good news: Social Security is not broke. Social Security had more than $2.8 billion in reserves in its trust fund at the end of 2015, and it was expected to run a small surplus in 2016. In fact, Social Security's income from payroll taxes, taxes on certain Social Security benefits, and earnings on its invested reserves are expected to exceed the program's expenses through 2019," the Fool explained.
"The bad news is what happens in 2020, when deficits are expected to begin, and continuously grow, for the foreseeable future. Simply put, there won't be enough workers paying Social Security taxes to cover benefits for all the retirees drawing money from the program," the Fool reported.
"If nothing is done, the Social Security trust fund is expected to be completely depleted by 2034. Once the reserves run out, it is estimated that the incoming payroll tax revenue will only be enough to cover about three-quarters of promised benefits, which would trigger across-the-board cuts."
(Newsmax wire services contributed to this report).
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