Trump, Social Security, and Santa Claus

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By on December 20, 2019 in Retirement with 0 Comments
Santa Claus wearing beach sunglasses and holding a fan spread of cash in his hands against a solid red background

Regardless of what Congressional Democrats think of President Trump, he is clearly on Santa’s nice list given the gift coming from the Social Security Administration on the program’s short-term prospects: payroll tax revenue is once again better than expected – and it saves the day.

For a bit of a backdrop, President Trump for many years has told voters that the best cure for Social Security is a strong economy. He has argued that this environment boosts jobs and wages which drive the system’s payroll tax revenue.

Now, the numbers coming from the SSA suggest that higher than expected payroll revenue will keep the program in the black for the second year in a row.

The data are an early Christmas gift for any politician hoping to avoid the subject of the system’s long-term prospects in the coming election cycle.  

The Next Breadcrumb of Crisis

These data forestall the next visible breadcrumb on the trail to crisis: Social Security runs red-ink, i.e. the total expense of the program forces the system to draw on its reserves.

Red-ink is a serious problem for the program, and the nation as a whole. Unfortunately, any discussion of the transition from black to red has been derailed by bickering over about how to measure the color of red – “is interest from the trust fund real.”

For what it is worth, I use the definitions for cash flow from the trustees. (see comments section the Trust Fund, Interest, and rabbit holes) 

The red-ink milestone was projected to flow in 2018 for the first time since the early 1980s. Instead, higher than expected payroll tax revenue kept the system in the black for that year.

I thought we postponed the unavoidable by maybe a year. In fact, I opined last June that the Trump Administration would get the bad news about Social Security out of the way well before the coming election cycle moves into full swing. 

Nope. While the trustees did rein in their estimates a bit, they actually pushed back the date for a revenue shortfall to 2020. Six months later, the program should top those estimates. It was a good year, in what will be a bad century for the program.

The Rescue Never Stops

While experts may not believe in interest income, current law depends upon it. We nominally call Social Security a pay-as-you-go operation, when it really isn’t. Under current law, the program is a pay-as-much-as-you-can operation, so interest is a vital part of the system.

At this point, the trustees believe that the trust fund will bring in about 800 billion of free cash flow to the program over the next 10 years – provided that on-going payroll tax revenue provides some protection for the balances in reserve. Trump’s solution has delivered in 2018 and 2019, but the message is: the rescue never stops. 

When we hit a recession – and we will at some point – the system will take a double hit. First, payroll tax revenue will come up short, and second, interest payments will reel as falling balances earn a falling rate of interest. 

On Balance

When the month began, Social Security appeared to be headed for a modest fall in balances from the $2.9 trillion on hand at the end of 2018. At that point, the program had actually spent about $25 billion more than it had collected.

While that sounds ominous, the program posts interest payments in December – so any loss would have been small. It would mainly serve as a visible reminder to voters that the program is marching to crisis.

As it is, the politicians can thank the economy, Trump, or Santa Claus that they do not have hard questions coming in January.

© 2020 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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