Tags: president trump | social security | fix

Will Trump Fix Social Security's Long-term Shortfall?

Will Trump Fix Social Security's Long-term Shortfall?

President-elect Donald Trump and his wife Melania Trump (L) meet with House Speaker Paul Ryan (R-WI) at The Capitol Building on November 10, 2016 in Washington, D.C. United States. (Zach Gibson/Getty Images)

By
Friday, 11 November 2016 11:53 AM Current | Bio | Archive

Now that Donald Trump is President-elect Trump, people are starting to ask: how will he deal with the ever widening gap in Social Security’s long-term financing?

This is a question that someone should have asked more forcefully long ago. Over the course of the campaign, candidate Trump, like his opponent, showed little enthusiasm for the details of how he would lessen the crisis brewing in our entitlement programs. In the debates, he told voters what he wouldn’t do, but not much about the approach he favored. Candidate Trump emphatically promised that he will not cut benefit levels, and he plans on cutting taxes. So it is unlikely that FICA taxes will rise, or the retirement age will rise without some pressure from Congress.

Trump's answers about Social Security focused on intangibles that change the cash flow of the program without altering benefit levels of seniors or price tag paid by employees. He wants to eliminate fraud, waste, and abuse to reduce cost, and hopes to create millions of new jobs generating the FICA taxes needed to stabilize the program. In terms of savings from reducing waste, fraud, and abuse, the media has typically reported that the Committee for a Responsible Federal Budget believes that Social Security could save about $5 billion per year. The problem is that the report said the exact opposite. CFRB believes that it would be difficult if not impossible to save that sum. Moreover, it is entirely possible that Social Security would need to spend more than $5 billion in order to find the savings.

The larger expectation is that economic growth will save the system. In the final debate, Trump said, "We're going to grow the economy. It's going to grow in a record rate." Essentially he believes that millions of new jobs will inject a flood of payroll tax revenue into our Social Security system to eliminate the funding financing gap.

To be clear, growth helps over the short-term. Over the longer term, however, the structure of Social Security plays against this concept. Every dollar collected creates a promise of more benefits in the future. As these new workers become new retirees, the rising level of payments tends to overwhelm the support created by the new jobs.

If jobs, by themselves, were the answer to Social Security, the government could expand Social Security to cover all U.S. workers. Unfortunately, the Social Security Administration projects that adding new state and local employees to Social Security would lower the shortfall by 6 percent, but in the end the system is in worse shape than at the start.

The larger problem for Trump’s envisioned growth has to exceed the already optimistic outlook forecasted by the Trustees, rather than the anemic benchmark set over the last eight years. Trump's working baseline assumes economic growth for 75 years without a single recession. The reality is Trump’s expected growth is chump change. Any solution that evolves from sustained economic growth does not depend upon Trump. It depends upon a president 70 years from now building record growth on top of 60 years of historic growth.

To illustrate the challenge, according to the Trustees, Social Security’s revenue solution needs to generate about 170 billion in incremental income in 2017 in order to maintain a pathway to solvency. If we achieve 5 percent real growth in 2017, that will generate a little more than $40 billion of incremental revenue.

Here are the numbers: $19 trillion * 0.05 (Growth Over The Trustees’ projection of 3.1 percent) * 0.44 (wages' portion of GDP) * 0.8 (Social Security's portion of wages) * 0.124 = roughly $60 billion.

In the best case, the flood of new revenues into Social Security system will not eliminate the funding shortfall. It postpones the crisis while it grows larger. In the worst case, we have wasted four years of time.

Brenton Smith writes on all aspects of Social Security reform, translating the numbers and jargon of the issue into terms that everyone can understand. His work has appeared in Forbes, MarketWatch, Fox Business, The Hill, and a number of regional newspapers. To read more of his reports — Click Here Now.

© 2019 Newsmax. All rights reserved.

   
1Like our page
2Share
BrentonSmith
Now that Donald Trump is President-elect Trump, people are starting to ask: how will he deal with the ever widening gap in Social Security’s long-term financing?
president trump, social security, fix
694
2016-53-11
Friday, 11 November 2016 11:53 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
America's News Page
© Newsmax Media, Inc.
All Rights Reserved