I’m an Economist: Here’s My Prediction for Social Security If Trump Wins the 2024 Election
It’s no secret that Social Security and Medicare are in financial straits. Or at least they will be relatively soon. According to the Social Security and Medicare Trustees, the Social Security Old Age and Survivors Insurance (OASI) trust fund, which pays Social Security benefits to retirees, will run out of money in 2033, and the Medicare Hospital Insurance (HI) trust fund will become insolvent by 2036.
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The result, as predicted by the U.S. Budget Committee, could be a 21% reduction in Social Security benefits as of 2033 and an 11% cut to Medicare Part A benefits in 2036. Considering inflation and the rising cost of living, that’s not great news to those in the sunset of their careers, and even worse news to younger workers paying into the failing system.
But what effect would a second Donald Trump administration have on the Social Security safety net? Would it save it, sink it or change it? We asked Chuck Warren, political economist and host of the Politics Podcast, for his predictions.
Privatization
Privatizing Social Security has been a dream for Republicans for more than a decade. Democratic opposition and other factors have stalled these efforts.
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However, if Trump rolls into the White House with Republican majorities in both the House of Representatives and the Senate, “one of the most significant changes could be the drive to partly or wholly privatize Social Security,” Warren said. “This, therefore, implies that while higher returns are probable it also comes with market risks and might undermine the income guarantee side of Social Security.”
Benefit Reductions
Many argue that if nothing is done, benefit reductions are inevitable. So, they say, benefit reductions on certain groups, that can afford them, is the right tactic.
“Solvency issues could lead to these proposals,” Warren said. For example, gradual benefits reductions especially for richer retirees, including such things as benefit calculation formula changes, he said. “However, while such approaches would prolong the trust funds’ life, [they would] face strong opposition from the public.”
Removing the Taxable Income Cap
If reducing benefits is off the table, then it stands to reason that more revenue will be needed. And that usually means new or higher taxes. One idea that has long been championed by the left is removing the taxable income cap so that higher earners pay more.
As of 2024, the 12.4% Social Security tax, which is paid equally (6.2% each) by employer and employee, is only applied on wages up to $168,600. Removing that cap would bring in more revenue by those who could most afford it, while protecting those who can’t.
But, said Warren, don’t count on this one. This would “be a major deviation from Trump’s previous tax policies focused on cutting taxes,” he said.
Raising Tax Rate
Rather than removing the cap, or in addition to it, another approach is increasing the rate itself.
Setting the payroll tax rate at 16%, up from 12.4%, would shore up Social Security for 75 years, Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, told CNN.
Republicans are unlikely to go for that, however, and again, Warren said this goes against Trump’s previous tax policies.
Age Thresholds and Eligibility Changes
Currently, Americans can begin accessing their retirement benefits at age 62 by taking early retirement. This results in a reduced benefit. Full retirement benefits can be taken at age 66 to 67, depending on the person’s date of birth. Increased benefits kick in if individuals wait until age 70.
But that could change with a Trump administration, said Warren. “Attempts may be made to increase the age of eligibility for both Social Security and Medicare due to growing life expectancies. However, it could also mean postponement of benefit entitlements for future pensioners who paid their savings into this system over decades.”
Either way, expect backlash from one group or another.
Bottom Line
If there is one consistency when it comes to Trump, it’s inconsistency. So, said Warren, predicting precisely what will happen is difficult, but, “given Trump’s first term, as well as Republican preferences on policy, we can expect that there will be attempts to reduce government spending on these programs through a combination of privatization, tax reforms and benefit adjustments,” he said.
“However, significant changes would need legislative support and face opposition from both sides of the aisle.”
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This article originally appeared on GOBankingRates.com: I’m an Economist: Here’s My Prediction for Social Security If Trump Wins the 2024 Election