While Trump Seeks Cost Cutting, the Fate of Social Security Hangs in Balance

While President-elect Trump is promising to slash unnecessary government spending in his next term, questions are emerging about how the 47th president might approach Social Security — the biggest chunk of the U.S. budget that is barreling toward bankruptcy. The Congressional Budget Office estimates that without significant intervention, the Social Security trust funds are due to run dry in 2033, at which point the law calls for a 23 percent cut in benefits. Trump’s proposals to lower corporate tax rates, end taxes on tips, Social Security benefits, and overtime pay, and deduct car loan interest and state and local taxes could add $2.3 trillion to Social Security’s cash deficit, according to the Committee for a Responsible Federal Budget, a non-partisan organizaton. The committee says these proposals could increase the $35 trillion national debt by $7.75 trillion through 2035.With the formation of the Department of Government Efficiency, or DOGE, led by Tesla chief executive Elon Musk and entrepreneur Vivek Ramaswamy, Trump has signaled his intention to tackle America’s spending problem. While DOGE will work to “slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies,” Trump also has said he would “fight for and protect Social Security.” Trump’s former director of the National Economic Council and a columnist for the Sun, Lawrence Kudlow, tells the Sun that there’s “nothing going on with Social Security. Trump doesn’t want to touch it.” Neither does Congress have any appetite for Social Security cuts, given that entitlement beneficiaries constitute a powerful voting bloc. Any benefit reductions or tax increases would require Congressional approval. Yet it’s clear that the federal government’s fiscal path is “unsustainable,” as Federal Reserve Chairman Jerome Powell said upon cutting interest rates by a quarter point earlier this month. “It is ultimately a threat to the economy,” Mr. Powell said. So how might a second Trump administration pursue “government efficiency” while preserving a program that makes up 22 percent of the federal government’s $6.75 trillion budget? Americans overwhelmingly support Social Security. Eighty-seven percent surveyed by the National Institute on Retirement Security said the program should be a priority, even if there is a budget deficit. Many retirement-age citizens haven’t saved enough money or do not have a big enough pension to provide sufficient retirement income on their own, as a survey from Bankrate found that 69 percent of those 60 and older said they will be reliant on Social Security benefits.Social Security is financed through a dedicated payroll tax. Employers and employees each pay a 6.2 percent tax on earnings, while the self-employed pay the full 12.4 percent tax, up to the “taxable maximum” which stands at $168,600 in 2024.Rather than proposing tax cuts on Social Security, which would require legislation with the support from three-fifths of the Senate, Trump could pass a tax credit that repays Americans what they are charged for the program, the director of a center on the federal budget at the conservative think tank, the Heritage Foundation, Richard Stern, tells the Sun. Trump also is expected to seek to extend the Tax Cuts and Jobs Act of 2017, which, coupled with his efforts to diminish the deficit’s economic drag, could stimulate economic activity, increase payrolls, and therefore bolster revenues that support Social Security. “It’s almost certain to be the case that the Social Security Trust Fund will actually be in better shape because Trump is president,” Mr. Stern, who previously served as a lead staffer on budgetary issues for the Republican Study Committee in Congress, says. The senior vice president and senior policy director for the Committee for a Responsible Federal Budget, Marc Goldwein, is not so sanguine about Washington’s ability to fix the looming insolvency problem. He says the government cannot do much pertaining to Social Security other than cutting fraud in the disability program, which at best would generate only marginal savings. The next administration could, however, tackle overspending in the healthcare realm by cutting the costs of the middlemen, Mr. Goldwein says. Funding for Medicare Advantage plans, which is the private and more costly alternative to Medicare, could be reduced to a rate similar to traditional Medicare plans. Currently, the government — and by proxy, the taxpayer — pays much more for an enrollee to get the same procedure in a hospital versus a private clinic. “Getting rid of that disparity,” Mr. Goldwein says, “that’s government efficiency.”This proposed Medicare reform would still ensure that enrollees have the same benefits, he says, while requiring them to pay less by cutting down the costs of premiums. It would empower people to replace any potentially lost security with other income — rather than cling to promises of payment that the government can’t keep for much longer. The Heritage Foundation’s policy wishlist called Project 2025 favors making insurer-run plans the default enrollment option for Medicare, which would effectively privatize the program. While Trump sought to distance himself from Project 2025 during his campaign, he has in recent days tapped nearly a half-dozen of its authors and contributors to serve in his administration. If heart surgeon Dr. Mehmet Oz is confirmed as Trump’s pick to run Medicare and Medicaid, he would likely endorse Medicare Advantage plans. Asked how he would strengthen Medicare during his Senate campaign, Dr. Oz said, “These plans are popular among seniors, consistently provide quality care and have a needed incentive to keep costs low.”Heritage also favors reforms that would offer Social Security recipients the option to lock in the benefits they’ve earned so far and opt out of further benefits.“At any income level, if you could just keep the money you put into Social Security and invest it instead, you would get a better rate of return than Social Security,” Mr. Stern says.Social Security’s march toward bankruptcy comes as Americans are living longer and spending more years in retirement, while the nation faces a record-low birth rate, portending a smaller pool of taxpayers to support entitlement programs in the future. That demographic shift offers another possible solution: raising the retirement age. When Social Security was enacted by President Roosevelt in 1935, life expectancy at birth was 61 and the program’s retirement eligibility age was 65, so many people never received Social Security. Today, life expectancy at birth is 79 and people can begin receiving Social Security retirement benefits as early as age 62.A senior research fellow at Heritage, Rachel Greszler, argues that policymakers should lift the retirement age to 69 or 70, raising the threshold by one or two months per year. This update would “restore Social Security’s intent,” she wrote, “to protect against poverty in old age and to prevent younger generations from bearing the financial burden of that protection.”The prevalence of longer life expectancies and fewer physically demanding jobs means that more Americans can work later into life. Studies suggest that those who do delay their retirement see associated perks including improved health, stronger social networks, lower divorce rates, and lower alcohol consumption.“We ought not force people to work longer,” Mr. Goldwein says, “but find ways to change the signals and incentives to allow people that would be better off working longer to do so, and also offer more flexible arrangements for people to phase out their retirement or go into encore careers.”Yet, he adds, “Congress is filled with procrastinators. The most likely scenario is that we are going to solve this at the last possible minute. That’s going to be an uglier solution than if we solve it today.”In a nightmare scenario, the government could print tens of trillions of dollars to avoid default, causing hyperinflation that would distort the economy’s ability to produce goods and services and effectively obliterate income growth. That was the fate of Germany’s Weimar Republic, which, when faced with a debt of 156 billion marks after World War I, printed 400 quintillion Deutsche Marks. As the cost of bread skyrocketed to 200,000 million marks, fortunes were lost and confidence in the young republic depleted. “If the U.S. does not figure out a way to get Congress to do something responsible here,” Mr. Stern says, “that is the future of the U.S.”

While Trump Seeks Cost Cutting, the Fate of Social Security Hangs in Balance

While Trump Seeks Cost Cutting, the Fate of Social Security Hangs in Balance

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