As the 2024 election approaches, candidate Vice President Harris and Former – President Trump promise to protect Social Security, but only Donald Trump has specific proposals. And Trump’s plan would cut Social Security benefits by 33 percent and drive Social Security to insolvency by 2031. The Trump proposals would benefit high income individuals and drain $2.3 trillion from the trust funds, which already need almost half a trillion dollars to stay solvent.
On her part, Harris has not outlined how she would protect Social Security.
The fundamental issue facing Social Security today is a looming funding crisis. According to the Congressional Budget Office (CBO), the Social Security trust funds will become insolvent by 2034. Without Congressional and Presidential action to raise revenues, benefits would be immediately reduced by 23 percent, which would increase elder poverty and devastate many middle income retirees. As it stands now, restoring Social Security solvency over the next 75 years requires one of two difficult choices.
First, we could, but it is not advisable, reduce all future benefits. But cutting benefits – including raising the retirement age — is politically and ethically untenable, particularly when so many Americans are already struggling to save for retirement. Let me explain why Social Security serves and will serve as the main source of income to lower and middle income retirees.
The private voluntary pension system has failed most lower- and middle-income Americans. Nearing retirement most older workers’ median retirement wealth is less than $100,000, and nearly half of workers have next to nothing saved in retirement accounts. Most have retirement accounts that fall short of the $400,000 experts estimate many will need to retire comfortably. Meanwhile, Americans already work more hours than their counterparts in other developed nations, so extending the full Social Security benefit age beyond 70 is impractical and unrealistic.
How Trump’s Plans Would Weaken Social Security
Candidate Donald Trump’s proposals include eliminating the taxation of Social Security benefits, ending taxes on tips and overtime, imposing tariffs, and expanding deportations. Tariffs and deportations have little direct connection to Social Security but not taxing Social Security benefits for higher income recipients and not taxing tips and overtime would cause drastic shortfalls.
Doubtless these proposals are staged to appeal to certain voters; but, if implemented, Trump’s policies would increase Social Security’s ten-year cash shortfall by $2.3 trillion according to The Center for a Responsible Federal Budget.
And worse, the program’s insolvency would come sooner, by 2031 instead of 2034. Social Security cuts would be 33 percent across-the-board much larger than the 23 percent predicted now.
Experts express Social Security’s annual shortfall in terms of how much of the FICA tax has to be increased to restore solvency. Trump’s plans would increase the deficit by roughly 50 percent in 2035, from 3.6 percent to 5.4 percent of payroll. Payroll in 2023 was about $10 trillion.
What Should Be Done To Increase Revenues?
The Social Security Administration painstakingly costs-out all the serious proposals to fix Social Security. Among the worst is cutting benefits and raising payroll taxes. Why the worst? Retirement incomes are too low, labor is already heavily taxed, and the payroll tax is regressive.
The most promising proposals broaden the tax base by taxing capital gains and raising the cap on taxable income for Social Security contributions. Currently, earnings above $160,200 (as of 2023) are not subject to Social Security taxes. Removing this cap would require higher-income earners to contribute more, generating additional revenue without impacting lower- and middle-income workers. Taxing capital gains would not distort economic incentives but it would bring in considerable revenue. I calculated that if Elon Musk’s income totals to about $160,000 every seven seconds and all of his income was taxed at the FICA rate all year, 5% of Social Security’s deficit would be eliminated. He, like other billionaires, wouldn’t miss the money.
Raising the cap and taxing capital gains would be efficient and effective. Broadening the tax base would generate enough revenue without distorting economic activity. Trump’s proposals, in contrast, would accelerate Social Security’s insolvency and lead to deeper benefit cuts, worsening the program’s financial crisis.
Representative John Larson’s Social Security 2100 Act comes close to a comprehensive fix. The proposal broadens the Social Security tax base to ensure all forms of income contribute to the system, reflecting the changing nature of wealth in the U.S. economy concentrating at the top.
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