Last week, America celebrated a very special birthday. Back in August of 1935, President Franklin D. Roosevelt signed the Social Security Act into law, establishing what is still the most important social program in our country.
Today, Social Security provides benefits to more than 64 million people, of whom more than 70% are retired workers. Of the nearly 45 million retired workers, 62% pay Social Security for at least half of their monthly income, with more than 15 million retiring each year from poverty as a direct result of their Social Security income.
In other words, it’s kind of a big deal.
Image Source: Getty Images.
In the current form of the program, Social Security cannot go bankrupt
But the most important aspect of the Social Security program is its longing; the program just celebrated its 85th birthday. It is important to recognize that, despite its many problems, it is in grave danger of bankruptcy.
The secret sauce to the success of Social Security is the fact that two of the program’s three sources of revenue return. While the Social Security interest income earned on its $ 2.9 trillion in asset reserves (that is, its net cash surplus built up since its inception) could potentially disappear in 15 years, as long as the U.S. public continues to work, Social Security will continue with income generating his tax deduction of 12.4% on earned income and the tax on benefits for individuals / couples earning above a certain threshold. Together, the payroll tax and the benefits tax accounted for 92.4% of all income collected last year for Social Security.
To be clear, survivability and sustainability are two very different things. According to the Social Security Board of Trustees’ 2020 annual report, the program faces a $ 16.8 trillion deficit deficit between 2035 (the year asset reserves are expected to be) and 2094. If and when this roughly $ 2.9 trillion is gone, sweeping benefit cuts of up to 24% could be imposed on retired workers to track the solvency of Social Security for many decades.
But when it comes to the simple question of whether Social Security will be there for you in one form or another when you retire, the answer is a resounding “yes”, as long as you have the required number of work credits in your entire life. have earned.
In its current form, Social Security is useless.
President Trump talks to reporters. Image Source: Official White House Photo by D. Myles Cullen.
Donald Trump’s economic growth plan could kill Social Security
The only way the long-term future of Social Security would be somehow doubted is if lawmakers changed how revenue is collected – and that’s exactly what President Trump has proposed.
For unusual economic unrest associated with the coronavirus 2019 pandemic (COVID-19), Congress passed and the president signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on March 27th. This $ 2.2 trillion relief package, the largest on record, provided much-needed funding to troubled industries and small businesses. It also provided $ 300 billion in direct incentives to American workers and seniors. To date, more than 160 million Americans have received a payment for economic impact.
Unfortunately, these payments have not done much for individual taxpayers and their families, and that is why negotiations are continuing between Democrats and Republicans over a second round of direct incentives. When those talks stalled and the Senate went on a month-long recession, President Trump took it upon himself to sign a series of executive orders two weeks ago, one of which called for a tax cut for the rest of the year (early September) 1 and runs through December 31). Deferring tax evasion means that workers will be required to repay what was deferred at a later time, although in the short term it would boost their pay for home equity.
But this is just the beginning, at least in Donald Trump’s mind. In a recent White House briefing, Trump said of the tax bill: “Assuming I win, we will end the payroll tax by the beginning of the new year.”
Image Source: Getty Images.
Even though a White House official on Fox Business Network said there have been no discussions about permanently waiving the tax bill, the simple fact that President Trump is considering it is appalling. Removing the payment tax – the primary funding mechanism of Social Security – would remove funding for the program.
Some of you might remember that a Republican lobbyist flirted a few years ago with the idea of replacing the existing payroll tax with a value-added tax (VAT). The problem with a VAT is that it would bind the health of Social Security to that of the U.S. economy, and any prolonged period of recession could cause untold destruction on the program as consumption declined.
Social security may not be eligible for retirement workers if Trump were to change the way the program is funded. The White House official said they are considering forgiving the delayed tax – which may also be problematic for Social Security, but is not as drastic as permanent elimination of the tax.
Fortunately, President Trump does not have unilateral power to end the tax cuts permanently, nor is it likely that lawmakers in Congress will agree to make such a move. With the notion that ending the Social Security tax bill could kill Social Democrats, neither Democrats nor Republicans would be in favor of such a measure.
Pay taxes will continue to collect – and thus the longing for Social Security will be safe.
