Challenges for Social Security Under a New Administration

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By on March 28, 2017 in Retirement with 0 Comments

Social Security card with a financial statement and a calculator

By the numbers, 2016 was a very good year for Social Security.  The program closed out the term of President Obama making more money than the Trustees had forecast at the end of 2015, and spending less.  (For those who want the numbers : the forecast, the actual revenue and expense.)

While this revelation should please Donald Trump, the man who has assumed responsibility for the program on which millions depend, the narrative on Social Security is getting worse rather than better. It is important to understand why.

Trump has expressed his belief that Social Security can be made whole by economic growth. The idea is that if we have more workers contributing more taxes, the system will inherently improve.

Here is a benchmark: To put Social Security on the path to solvency (75 year), the program would have needed to generate roughly 170 billion in found money.  The bump created by the 2016 results is closer to $20 billion.

When experts say that this approach is feasible, they are not talking about Donald Trump’s success.  The driver of that solution is a future president who likely hasn’t even been born.

Here is a benchmark: If Donald Trump delivers 5% growth, much higher than he has targeted, the program will generate an additional $50 billion.

The Problems

Here is the problem.  Found money has no cost associated to it.  The fact is that average wages rose last year, meaning that the indexed cost of future benefits will exceed the Trustees expectations as well.  All of the new jobs that are created in 2017 will generate future benefits.

None of this qualifies as strictly found money.

Thus far Trump’s response for Social Security has been that more jobs will create the revenue necessary to sustain the system. More jobs likely does mean better revenue. The challenge here is that the revenue envisioned by Trump has to exceed the revenue expectations of the trustees. This is a bit problematic because 2016 was the last soft threshold, where as the trustees expect a solid bump in revenue for 2017 to 2020.

Here is a benchmark: The Trustees are looking for revenue growth from wages to grow on average 5.75 percent during the Trump presidency, where as the system has only average 4.5 percent over the last five years of economic expansion.

Part of this growth has been attributed to the Affordable Care Act (“ACA”).  According to the Trustees, employers will pay employees higher wages as the cost of healthcare falls.  It is introductory economics.

No one is questioning the economics of the assumptions, but the reality of the ACA has been horrible.  I am just one person who has seen the cost of healthcare explode.  My experience is not isolated. Trump was elected in part on his promise to dismantle the legislation which the trustees see as the bedrock of the future wage growth.

Another problem that Trump will face is the passage of time. Time is Kryptonite to Social Security for two reasons. Wisely or not, Social Security is measured in 75 year windows of time which change every year. As a consequence, the measure of Social Security for 2017 will change such that 2016 is replaced by 2091. 2016 is a year in which the system made money, and 2091 is a year in which we expect the system to lose more money than in any previous year.

The other aspect of the report that is driven by time is the measure of solvency itself.  It is a present value number, which will grow with every passing second.

Here is a benchmark: Last year, the passage of time meant that the system added roughly $500 billion in unfunded obligations. These mechanics do not improve from year to year. So by the time that Donald Trump arrived in the Oval Office the cost to float Social Security had risen to nearly $12 trillion.

Clearly the Trustees may have other reasons for a surge in wage revenue. At this point, we shouldn’t expect any help from the ACA.

© 2017 Brenton Smith. All rights reserved. This article may not be reproduced without express written consent from Brenton Smith.

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About the Author

Brenton Smith (A.K.A. Joe The Economist) writes nationally on the issue of Social Security reform with work appearing in Forbes, FedSmith.com, MarketWatch, TheHill.com, and regional media like The Denver Post.

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