[Salon] What Would the Trump Campaign Plans Mean for Social Security?

[Chas Freeman <cwfresidence@gmail.com>]

What Would the Trump Campaign Plans Mean for Social Security? October 21, 2024 The Social Security trust funds will be insolvent by Fiscal Year (FY) 2034, according to projections by the Congressional Budget Office (CBO), at which point the law calls for a 23 percent cut in benefits. Restoring solvency over the next 75 years would require the equivalent of reducing all future benefits by 24 percent or increasing revenue by 35 percent.   Vice President Kamala Harris has said she would “protect Social Security” and former President Donald Trump has said he would “fight for and protect Social Security.” Unfortunately, neither candidate has presented plans to fix Social Security’s finances despite the looming $16,500 cut facing a typical couple retiring just before insolvency.   In fact, we find President Trump’s campaign proposals would dramatically worsen Social Security’s finances.   President Trump’s proposals to eliminate taxation of Social Security benefits, end taxes on tips and overtime, impose tariffs, and expand deportations would all widen Social Security’s cash deficits. Under our central estimate, we find that President Trump’s agenda would:   Increase Social Security’s ten-year cash shortfall by $2.3 trillion through FY 2035. Advance insolvency by three years, from FY 2034 to FY 2031 – hastening the next President’s insolvency timeline by one-third. Lead to a 33 percent across-the-board benefit cut in 2035, up from the 23 percent CBO projects under current law. Increase Social Security’s annual shortfall by roughly 50 percent in FY 2035, from 3.6 to 5.4 percent of payroll. Require the equivalent of reducing current law benefits by about one-third or increasing revenue by about one-half to restore 75-year solvency. US Budget Watch 2024 is a project of the nonpartisan Committee for a Responsible Federal Budget designed to educate the public on the fiscal impact of presidential candidates’ proposals and platforms. Throughout the election, we will issue policy explainers, fact checks, budget scores, and other analyses. We do not support or oppose any candidate for public office. Social Security will be only nine years away from insolvency when the next President takes office. If President Trump’s campaign agenda were enacted in full, we estimate it would shrink that window by one-third, to only six years.   Proposals from President Trump that would weaken Social Security’s finances include:   Ending taxation of Social Security benefits, which would eliminate a revenue stream currently used to help finance Social Security. Ending all taxes on overtime pay and tips, which would reduce payroll tax collection accruing to the Social Security trust funds. Imposing large tariffs on imports, which would either increase cost-of-living adjustments (COLAs) through higher inflation or reduce taxable payroll.  Enhancing border security and deporting unauthorized immigrants, which would reduce the number of immigrant workers paying into the Social Security trust funds.   To estimate the effects of these policies on Social Security trust funds, we looked to the high, low, and central estimates in our recent analysis of the Trump campaign plan. We then estimated the impact of each relevant policy on Social Security revenue and/or spending, making additional high and low assumptions where appropriate.   Under our central estimate, we found these policies would add about $2.3 trillion to Social Security’s cash deficit between FY 2026 and 2035 – which is about 1.8 percent of current law taxable payroll once phased in. This includes $950 billion from ending the income taxation of Social Security benefits, about $900 billion from ending payroll taxes on tips and overtime pay, and roughly $400 billion from changes to tariffs and immigration. Under our low-cost scenario, we estimate the Trump campaign’s policies would add $1.3 trillion to Social Security's ten-year cash deficit, and under our high-cost scenario they would add $2.8 trillion. This would represent 1.0 to 2.2 percent of payroll.   As a result of these higher cash deficits, Social Security trust fund reserves would be depleted much faster than under current law. Whereas CBO projects the trust funds to run out of money in FY 2034, we estimate they would run out of money three years earlier under President Trump's agenda, in FY 2031. In other words, the trust funds would be insolvent only six years after the next President takes office instead of nine – reducing the remaining life of the trust fund by one-third. Upon insolvency, the law calls for limiting Social Security spending to its revenue stream, which we've previously estimated would mean a $16,500 cut in annual benefits for a typical dual-income couple retiring in 2033. CBO estimates that benefits would have to be cut by 23 percent by 2035 under current law.   Under President Trump's agenda, we estimate that benefit cut would total 33 percent by 2035, with a range of 29 percent to 36 percent depending on the scenario. Importantly, this cut somewhat overstates the average effect on beneficiaries, as ending taxation of benefits would increase average after-tax benefits. In our central estimate, real after-tax benefits would be cut by the full 33 percent for about half of beneficiaries – those at lower income levels who don't currently pay taxes on benefits. But they would be cut by closer to 30 percent for the seniors with just enough income to be paying taxes on benefits, 26 percent for a household with income in retirement at about $100,000 per year, and 3 percent for the very highest income households.   Avoiding these cuts would require significant adjustments to Social Security taxes or benefits. Under our central estimate, we find President Trump’s agenda would widen Social Security’s 2035 shortfall by 50 percent. Assuming President Trump's agenda widened the 75-year shortfall by a similar amount, it would grow the solvency gap by more than 40 percent. As a result, restoring solvency would require the equivalent of cutting all current law benefits for current and future retirees by roughly one-third or increasing all current law taxes by roughly one-half.   President Trump has said he would close Social Security’s long-term shortfall by increasing drilling for oil and natural gas and by growing the economy. However, we've shown that increased energy exploration is unlikely to have a meaningful effect on Social Security – even if the gains were deposited into the trust fund. We've also shown that it would require unrealistically fast economic growth to close Social Security’s existing long-term funding gap.   Faster growth can reduce Social Security’s shortfall. But based on available analyses and understanding the effects of President Trump’s agenda on the national debt, it is unlikely his plans would significantly boost the size of the economy, and many estimates find his plans would reduce long-term output.   ***** Throughout the 2024 presidential election cycle, US Budget Watch 2024 will bring information and accountability to the campaign by analyzing candidates’ proposals, fact-checking their claims, and scoring the fiscal cost of their agendas. By injecting an impartial, fact-based approach into the national conversation, US Budget Watch 2024 will help voters better understand the nuances of the candidates’ policy proposals and what they would mean for the country’s economic and fiscal future. You can find more US Budget Watch 2024 content here. Read the analysis.