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Trump calls for Social Security cuts for fourth consecutive year

The Motley Fool logo The Motley Fool 2/21/2020 Sean Williams

Donald Trump © Darren McCollester / Getty

Donald Trump

It's that time of the year again, folks. And, no, I'm not talking about tax season.

The first quarter of every calendar year is traditionally when a sitting president will release their federal budget proposal for the upcoming fiscal year (a federal fiscal year ends on Sept. 30 and begins on Oct. 1). Although presidential budget proposals often prove to be nothing more than talking points, with the actual spending bills passed by Congress rarely mirroring what the president suggested, one aspect of Trump's latest budget proposal has people talking.

Trump's proposal calls for $4.8 trillion in federal spending for fiscal 2021, and would include a modest increase in defense spending and a substantive boost in funding for artificial intelligence. The president's budget also provides an outline over the next 10 years that would reduce federal outlays and save the government $4.4 trillion. 

While there are numerous pages of proposals that detail how these savings would arise, one cut, in particular, stands out.

In Trump's fiscal 2021 budget, he calls for a reduction in outlays to the Social Security program of $24 billion over the next decade. More than half of these savings would be derived from changes made to Social Security's Disability Insurance (SSDI) program.

The president's proposed "cut" to Social Security is of special concern to the 9.9 million people who received an SSDI benefit check last month. Of these 9.9 million people, almost 8.4 million are disabled workers, many of whom are reliant on the $1,258 a month that the program pays, on average. 

This proposal also comes after President Trump promised not to touch any of the entitlement programs, which includes Social Security, while on the campaign trail in 2015 and 2016.

Trump has called for Social Security cuts every year while in office

But what you might not realize is that this is par for the course for Donald Trump. In each of his four annual budget proposals as president, he's proposed Social Security reforms that would ultimately reduce program outlays.

In the fiscal 2018 budget, Trump's proposal called for disability program reforms, without much elaboration. However, the appendixes of the proposal laid out $72 billion in savings between 2018 and 2027, if implemented. 

In Trump's fiscal 2019 budget proposal, a total of $64 billion in Social Security outlay reductions are forecast between 2019 and 2028. Again, the president chose to focus on perceived inefficiencies with SSDI. A notable chunk of the savings are expected to be derived from limiting retroactive SSDI pay to six months from the current 12 months that approved long-term disabled workers are allowed to collect. 

Last year, when Trump released his fiscal 2020 budget, it contained proposals that would reduce Social Security payouts by $26 billion over the next decade. The president once again leaned on the idea of reducing retroactive pay for disabled workers to six months from 12 months as a core money-saving tactic.

Then, as noted, in the fiscal 2021 budget proposal released earlier this month, Trump called for $24 billion in Social Security cuts over the next decade.

5 things you need to know

While the idea of "cutting" Social Security in any way might sound disturbing, especially if you're an SSDI recipient who's potentially targeted by Trump's reform proposals, there are five things you really need to understand.

1. It's an election year, and nothing is going to happen

To begin with, breathe a sigh of relief, because there's virtually no chance that any Social Security reforms will stick during an election year. President Trump fully understands the ramifications of making direct changes to entitlement programs (i.e., they can cost votes), and had this to say at the Conservative Political Action Conference in 2013:

As Republicans, if you think you are going to change very substantially for the worse Medicare, Medicaid, and Social Security in any substantial way, and at the same time you think you are going to win elections, it just really is not going to happen... What we have to do and the way we solve our problems is to build a great economy.

2. Reductions are consistent with GOP ideology

While Trump's proposal to focus on SSDI might sound unique, it fits with the overall ideology of the Republican Party, which is to reduce long-term outlays from the program to strengthen its financial footing.

Traditionally, the GOP has proposed gradually raising the full retirement age from its upcoming peak of age 67 in 2022 to as high as age 70. In doing so, future generations of workers would have to wait longer to receive their full monthly benefit, or would be forced to accept a steeper reduction to their payout if claiming early. Either way, it would mean less in lifetime benefits paid.

Comparatively, Democrats have suggested that raising or eliminating the earnings cap associated with the 12.4% payroll tax on earned income (this cap is $137,700 in 2020) is the best solution to fix Social Security. Doing so would mean collecting more in payroll tax revenue from the well-to-do.

3. These cuts are peanuts relative to estimated outlays

It's also important to realize that the long-term "savings" outlined by the fiscal 2021 budget proposal are peanuts compared to Social Security's estimated outlays over the next decade.

According to Trump's budget proposal, annual outlays from Social Security are expected to increase from an estimated $1.15 trillion in 2021 to $1.91 trillion by 2030. In total, we're talking about $15.03 trillion being paid out from the Social Security program (more than 99% of which will go to paying beneficiaries) between 2021 and 2030. Trump's budget proposal calls for $26 billion in cuts, which works out to an outlay reduction of only 0.17% over a 10-year period.

4. Proposals are unlikely to pass Congress

If you're still worried, understand that it's also highly unlikely that any proposal calling for Social Security outlay reductions will pass Congress. Democrats have made it clear that they won't support legislation that leads to program outlays being reduced. That's a problem for Trump, considering that the House is currently controlled by Democrats.

What's more, amendments to the Social Security Act require 60 votes in the Senate, and it's been more than 40 years since a true supermajority existed in the upper house (i.e., at least 60 senators from the same party). This means any bill working its way through the Senate would need bipartisan support, which simply isn't going to happen anytime soon.

5. A bipartisan solution is the smartest way to fix Social Security

Lastly, as odd as this might sound, keep an open mind to Social Security outlay reductions. I've argued that the best way to resolve Social Security's estimated $13.9 trillion cash shortfall is to incorporate the core fixes from Democrats and Republicans into one bill. The reason? Each party's core solution resolves what their opposition fails to consider.

For example, the GOP's outlay reductions aren't going to be realized until many decades down the line. However, the Democrats' plan to raise additional revenue through increased taxation on the well-to-do immediately tackles some of Social Security's estimated cash shortfall.

Comparatively, Democrats fail to account for factors like increased life longevity, lower birth rates, and lower net immigration. That's where the Republicans' long-term outlay reductions will come in handy.

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