This Trump Proposal Could Kill Social Security | The Motley Fool


Category:  News & Politics

Via:  jbb  •  3 weeks ago  •  12 comments

By:   Selena Maranjian (The Motley Fool)

This Trump Proposal Could Kill Social Security | The Motley Fool
Is this tax relief worth it, if it ends Social Security? Learn more about what's going on.

S E E D E D   C O N T E N T

Is this tax relief worth it, if it ends Social Security? Learn more about what's going on.

The devil is in the details, as they say. President Trump has recently made some moves and suggestions that put Social Security at risk -- and that may have other consequences that surprise many Americans -- such as ending Social Security.

Here's a closer look at what has been done, what has been proposed, and what their effects on Social Security and taxpayers could be. We'll also look at other ways that Social Security can be weakened -- or strengthened.


Image source: Getty Images.

Meet Social Security

Social Security is a big deal. If you don't greatly appreciate it now, you probably will, come retirement. According to the Social Security Administration (SSA), Social Security benefits make up 90% or more of income for 21% of married elderly beneficiaries and 45% of single ones, and overall, Social Security benefits make up about a third of elderly Americans' income.

You may have heard that Social Security is in trouble, that it will soon run out of money, and that future retirees won't be able to collect benefits. Until recently, that vastly overstated the case. For many decades, the program has taken in more via payroll taxes on working people than it has paid out to beneficiaries. In other words, it ran a surplus. People have been living longer, though, and many have been having smaller families, so the ratio of workers-to-beneficiaries has been shrinking, leading to an eventual time when surpluses would stop and deficits would begin. That wouldn't mean no benefits, though -- just reduced benefits: It was estimated that future retirees might expect to collect around 77% of the benefits to which they were entitled. That's not great, but it's not the worst possible outcome.

There's been a new development, though.

President Trump's tax deferral

President Trump recently announced that payroll taxes would be deferred, from Sept. 1 through the end of the year. It was presented as relief for the many millions of people who have had their financial lives derailed by the ongoing COVID-19 pandemic, which has left many businesses ailing or closed and many workers furloughed, laid off, or simply earning much less.

That "payroll tax" refers to the 6.2% that's taken out of your paychecks for Social Security each pay period -- along with another 1.45% for Medicare, for a total of 7.65%. You may not realize it, but your employer forks over another 7.65%, so Social Security collects a total of 12.4% and Medicare 2.9%. (By the way, self-employed people pay both the individual and employer portions.)

That tax relief may seem terrific, but the taxes were only deferred . Yes, paychecks would be larger, temporarily, but workers would owe the money later -- which is potentially very problematic: With times as tough as they are, many people would have trouble coming up with the money.

Here's another problem: The relief was announced rather suddenly, and there are recent reports that companies are not ready to execute it. In a letter to Congress via the U.S. Chamber of Commerce, many organizations (such as the National Restaurant Association, the National Association of Manufacturers, and the National Retail Federation) noted:

If this were a suspension of the payroll tax so that employees were not forced to pay it back later, implementation would be less challenging. But under a simple deferral, employees would be stuck with a large tax bill in 2021. Many of our members consider it unfair to employees to make a decision that would force a big tax bill on them next year. It would also be unworkable to implement a system where employees make this decision.


Image source: Getty Images.

Making the tax cut permanent?

If much of the deferred taxes were never paid back, that would deliver a blow to the coffers of Social Security. Even more consequential, though, is what President Trump would like to do. At an August press conference, he said:

If I'm victorious on Nov. 3, I plan to forgive these taxes and make permanent cuts to the payroll tax. ... I'm going to make them all permanent. ... In other words, I'll extend beyond the end of the year and terminate the tax. ... And so we'll see what happens.

Social Security's chief actuary, Stephen Glass, recently projected what exactly is likely to happen -- and it isn't pretty. He sent a letter to Congress, noting:

If this hypothetical legislation were enacted, with no alternative source of revenue to replace the elimination of payroll taxes on earned income paid on Jan. 1, 2021 and thereafter, we estimate that DI Trust Fund asset reserves would become permanently depleted in about the middle of calendar year 2021, with no ability to pay [disability insurance] benefits thereafter. We estimate that OASI Trust Fund reserves would become permanently depleted by the middle of calendar year 2023, with no ability to pay OASI benefits thereafter.

That OASI acronym stands for Old Age and Survivors Insurance, and the OASI Trust Fund is where Social Security benefit dollars come from. So Glass is forecasting that Social Security's coffers would be depleted in about three years, and if no money is coming in, there would be no money to pay benefits. In this scenario, retirees wouldn't be collecting 77% of their benefits, but 0%.

That's a big problem, because Social Security benefits are not a generous gift from the government -- they're referred to as entitlements, because beneficiaries are entitled to them, as they have paid into the system during their working lives.

Other ways to strengthen or weaken Social Security

Don't start hyperventilating yet -- because it's unlikely that this will fully come to pass as proposed. Too many people rely on Social Security too much for that -- and many, if not most, of our representatives in Washington know that. (It never hurts to let them know your concerns, though -- so consider contacting your elected officials.)

It's worth noting that there are lots of ways that Congress can weaken -- or strengthen -- Social Security. It would be weakened simply by letting the surplus turn into a deficit, not changing anything about how the program works now. Some have suggested raising the full retirement age (which is 66 or 67 for most of us now), which would bolster the health of the program but would probably deliver less in benefits and make many people have to retire later.

Other tweaks to the program can strengthen it and may even allow for enhanced benefits. For example, that payroll tax could be increased . Most people might not notice an increase of a few percentage points, but that would make a huge difference to Social Security: The SSA has projected that raising the payroll tax rate to 15.9% from 2033 to 2062, and then to 19.4% for 2063 and beyond, would make up more than 100% of the expected coming shortfall.

Alternatively, or in addition to a tax increase, the payroll tax cap might be raised -- or eliminated. While all of your earnings are probably taxed for Social Security, it's not that way for everyone. The earnings that workers are taxed on for Social Security is capped, and for 2020, the cap (which changes in many years) is $137,700. So if you earn $1,137,700 in 2020, that first $137,700 of your earnings will be taxed for Social Security, but the next million dollars will not be taxed. Raising or eliminating the cap would generate a lot of money for the program.

There's a lot of uncertainty around Social Security these days. It's worth paying attention, because there are some possible changes that could affect your future financial security -- in a big way.

This Trump Proposal Could Kill Social Security @themotleyfool 


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1  seeder  JBB    3 weeks ago

Nothing good is guaranteed if Trump gets reelected... 

2  JohnRussell    3 weeks ago

If Social Security ended there would be a revolution in America. Old people left homeless with no money would have to be taken in by their adult children which would call those people to revolt. 

In short, there will be no mass popularity for the idea of ending Social Security. At the least, the party that enacted an end to Social Security would lose every election for the foreseeable future. 

2.1  MUVA  replied to  JohnRussell @2    3 weeks ago

Are you for means testing SS?

2.1.1  JohnRussell  replied to  MUVA @2.1    3 weeks ago

No, but people who dont need it should be encouraged to not accept it. 

The real issue is with social security taxes not being applied above a certain income level . Every level of income should be taxed to fund social security. 

2.1.2  MUVA  replied to  JohnRussell @2.1.1    3 weeks ago

So you are saying people with means should pay more  then not except?How about this you opt out if you don't want it and don't pay in also?

3  Kathleen    3 weeks ago

The Third Rail.  Use Social Security to scare voters to vote for someone else. 

Just Jim NC TttH
3.1  Just Jim NC TttH  replied to  Kathleen @3    3 weeks ago


3.2  MUVA  replied to  Kathleen @3    3 weeks ago

My father always told me don't rely on SS for retirement my in laws reinforced it so I have no fear SS will not be there when I retire.

3.2.1  Tessylo  replied to  MUVA @3.2    3 weeks ago

You'll have family money to rely on.  

3.2.2  MUVA  replied to  Tessylo @3.2.1    3 weeks ago

No I will have the money I have saved since I was 13 years old and living with in our means see easy.

3.2.3  Kathleen  replied to  MUVA @3.2    3 weeks ago

A lot of seniors do.

4  Tessylo    3 weeks ago

Why would we vote for trumpturd when he plans to end Social Security?  Who in their right mind would vote for trumpturd?


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