I am rapidly approaching my “Full Retirement Age” (FRA) according to Social Security. While I plan on working a few more years at Augusta University, assuming my students, my bosses, and I all think I am still doing a good job, my retirement is not too far away, and Social Security is a key element of my retirement financial planning. Therefore, I have a vested interest in the long-term solvency and viability of Social Security benefits for “old age”/retirees.
However, there is real concern about the future of such Social Security benefits. As I wrote in this space earlier this year, its trustees project that Social Security will be insolvent in 2033. This means that Social Security trust funds will not have enough money to pay promised benefits in full and on time. If this insolvency is not addressed, then in 2033, a mere seven to eight years from now, retirees will face an automatic 23% benefit cut under the law. As I noted in my June column, Social Security is on an unsustainable path, and to date, both political parties have been loath to do anything about it in fear of the potential ramifications of being accused of “taking food out of grandma’s mouth.” In my opinion, given both his popularity and unpopularity, President Trump is the right person at the right time to save Social Security.
Sometimes the “bad guy” can be good for the economy.
When things are not going well in a company and tough changes and/or decisions need to be made, that company may not immediately bring in who they might consider a long-term leader. Because some reasonable level of initial popularity is necessary for a long-term leader to start out on the “right foot,” a firm will often first turn to a “bad guy” or “hatchet man” to implement the “tough medicine” necessary for the firm to turn around. Such medicine might include mass layoffs, significant cost-cutting, a change in strategy, and a reduction of preferential work environments, such as remote work. Once the bad guy or hatchet man does this difficult work, he is often replaced by a leader who can reap the benefits of these changes without being tainted by having implemented them. He or she starts with a “clean slate” and is not associated with the difficult changes made before his or her arrival. While President Trump will not likely be replaced shortly after doing tough and unpopular things, he is the perfect “bad guy” for other reasons.
President Trump is probably the most interesting figure in today’s political environment because he is most representative of our current divisiveness. It seems that most Americans either love President Trump or hate him. Those who identify with President Trump’s “Make America Great Again” (MAGA) movement clearly love him and think he can do no wrong. Those who are traditionally left-leaning have been characterized as having “Trump Derangement Syndrome” or TDS, meaning that they do not like or disagree with everything he says or does. This makes him the perfect person for the job of making changes to Social Security, often described as the “third rail” of American politics, i.e., don’t touch it or you will surely be irreparably harmed. No matter what he does to Social Security, the MAGAs will still love him, and the TDSs will still hate him. So, as the clock ticks toward Social Security insolvency, President Trump can likely move with impunity to fix this most serious of national problems.
The path to Social Security solvency
Now that we know who can lead the fix to Social Security, the question is how best to do it. Unfortunately, given that the rolls of Social Security are expanding with Baby Boomers like me, more quickly than it is adding new contributors, there will be some pain involved. However, if we “eat our spinach” now, it will lead to significant benefits in the future; most importantly, the long-term solvency of Social Security. As I indicated back in June, the Brookings Institute has proposed some of this “spinach,” which includes:
- Increase the Taxable Maximum Ceiling: Each year, there is a maximum salary that is subject to Social Security Tax. This year, that number is $176,500. That means for all but the top 10% earners, their entire salary is subject to the tax. However, given the growing number of high earners, only 80% of total wages are subject to the tax. The Brookings Institute recommends increasing the maximum such that 90% of total wages are subject to the tax, the same percentage as it was in 1983. The nice part about this spinach is that only the highest earners need to eat it, and they are most able to tolerate it.
- Increase Payroll Taxes: Increasing the total Social Security Tax from 12.4% to 12.6% (with the increase split evenly between the employer and the employee) would reduce the Social Security deficit by $200 billion. Spinach is to be eaten by all, with excellent long-term benefits.
- Change Rules for Pass-Through Payroll Tax: This would close the loophole that allows many self-employed individuals to avoid paying Social Security Tax. This would reduce the Social Security deficit by an additional $550 billion over the next ten years. This is spinach that the self-employed should have been eating anyway.
The good news is that such changes will increase Social Security solvency to 75 years without decreasing the benefits of those currently (and soon to be) collecting Social Security.
Both political parties have been hiding behind a canard that no changes to Social Security is best for all. This is untrue, but they are too afraid to tell the truth because they are worried about losing votes. It will take a “bad guy” like President Trump to tell the truth on this matter and make us “eat our spinach” so that a solvent and funded Social Security will be there in the future.
