Trump’s Plan to Bankrupt Social Security’s Dedicated Funding Streams

On August 14, 1935, President Franklin D. Roosevelt signed the Social Security Act into law, establishing a system of old-age benefits and unemployment insurance. A year earlier, in the depths of the Great Depression, Roosevelt had sent a special message to Congress promising a plan for social insurance to protect “against the hazards and vicissitudes of life.” Congress modified many details of the proposed “Economic Security Act” as the legislation was originally called, and in later years, added Social Security Disability Insurance and Survivors Benefits and provided for a Cost of Living Adjustment (COLA).

As explained by Social Security Works, a nonprofit organization that advocates for safeguarding Social Security as a means of achieving social justice, Social Security has at its core the idea that all Americans should work hard and provide for their families’ future financial security through a lifetime of payroll or compensation contributions and, in turn, be assured that their families will be able to live in dignity when they retire, become disabled, or suffer premature death.

President Donald J. Trump’s hostility to Social Security and its core values is, unfortunately, nothing new. From the beginning, his proposed federal budgets have sought cuts to the program. And while attending the World Economic Forum in Davos on January 22 of this year, Trump openly stated that if re-elected, he would consider cutting Social Security, Medicare, and Medicaid funding.

On August 8, 2020, just a few days shy of the 85th Anniversary of the Social Security Act, Trump signed an executive order, the Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, deferring taxes on wages and compensation from September 1 through December 31, 2020. Trump further directed his Treasury Secretary to figure out how to eliminate any liability to pay the deferred taxes. Trump has since reiterated his plans, upon winning the 2020 election, to forgive the deferred taxes and terminate the payroll tax altogether.

On August 24, Stephen C. Goss, the Social Security Administration’s Chief Actuary, wrote in a letter to several US Senators that if payroll (FICA) and Self-Employment Contribution Act (SECA) taxes were eliminated as of January 1, 2021, with no alternative source of revenue to replace them, “we estimate that the DI [Disability Insurance] Trust Fund asset reserves would become permanently depleted in about the middle of the calendar year 2021, with no ability to pay DI benefits thereafter. We estimate that the OASI [Old Age and Survivors Insurance] Trust Fund reserves would be permanently depleted by the middle of the calendar year 2023, with no ability to pay OASI benefits thereafter.”

That is, as a result of the Anti-Deficiency Act prohibition on government expenditures for which there are no funds available, without transfers from the General Fund or some other source, Social Security payments would stop automatically. Given the magnitude of the Federal Deficit under Trump, compounded by the need for the COVID-19 response, a financially prudent person might wonder just where the money will come from.

Trump claims that upon declaring a federal emergency, he has legal authority (under 26 USC sect. 7508A) to unilaterally order the deferral of payroll taxes. This statute permits deferral up to one year, enough time to destroy the Social Security Disability Insurance program. If Trump wins the 2020 election and continues to declare emergencies as grounds for deferring payroll taxes, he could, all on his own, terminate the Social Security retirement and survivor benefits programs in less than three years.

According to Social Security Works, 61 million Americans, more than one out of every six, depend on Social Security. Just over three out of every five seniors depend on Social Security for most of their income, while one in three rely on Social Security for virtually all of their income. While Social Security benefits are modest (approximately $15,000 per year), those benefits lift some 22.1 million Americans out of poverty. Without Social Security, 42% of all seniors would fall into poverty. The Disability Insurance program provides benefits to 8.9 million Americans, while the Survivor benefits program serves 4.3 million children.

While Social Security is often referred to as one of the legs on a three-legged stool providing financial security during retirement, the reality is that for many people, the other two legs – employer-sponsored pension plans and 401ks and IRA accounts – are pretty wobbly. Pension plans have been disappearing for years, and many Americans are unable to contribute or retain significant sums in their tax-deferred retirement accounts. Under ordinary circumstances, sadly including age discrimination, the likelihood that seniors could find and retain high-paying positions is remote, and with people over 60 at higher risk for serious COVID-19 illness, approaching non-existent.

The re-election of Trump in 2020 is thus no ordinary hazard and vicissitude of life; it promises to condemn countless seniors and their dependents to extreme poverty.

Share this:
Posted in Latest News, Talking Points and tagged .