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The must-read Trump quote on Social Security

The Motley Fool logo The Motley Fool 7/6/2018 Sean Williams

To be frank, Social Security is a financial foundation that millions of seniors simply couldn't do without. According to the Social Security Administration, more than three out of every five aged beneficiaries lean on the program for at least half of their monthly income, with just over a third essentially reliant on the program for all of their income (90% or more).

Furthermore, the Center for Budget and Policy Priorities finds that its mere existence keeps more than 22 million people, including 15.1 million seniors, above the federal poverty line. We'd probably be contending with a genuine elderly poverty crisis right now if not for the guaranteed monthly payout associated with Social Security to eligible beneficiaries.

Big changes are underway

But therein lies the rub: This guaranteed payout is in some serious trouble. While Social Security is in absolutely no danger of going bankrupt -- which means current and future generations will receive a retired worker, disability, or survivor benefit, should they qualify -- it is on the brink of a major transformation.

The latest annual report from the Social Security Board of Trustees finds that America's most important social program will begin paying out more in benefits than it collects in revenue this year. In each year thereafter, with the exception of 2019, the net cash outflow from the Social Security is expected to increase. By 2034, the $2.9 trillion in excess cash that has been built up since the reforms of 1983 were passed are expected to be completely gone.

What happens then, you ask? Again, it doesn't mean the program is bankrupt. But it does clearly demonstrate that the existing payout schedule isn't sustainable. Assuming no additional revenue is generated above and beyond the intermediate-cost model projections from the Trustees report, an across-the-board cut in benefits of up to 21% may be necessary to sustain payouts (without any further cuts) until the year 2092. 

Considering how dependent today's senior citizens are on Social Security, the thought of a 21% reduction to benefits is frightening. As a reminder, the average retired worker is only receiving $1,412 a month, as of May 2018. This would push the average payout down to just $1,115 a month, using 2018 dollars. For added context, the federal poverty level for an individual on a monthly basis in 2018 is approximately $1,012. 

Trump: A fix is needed but unlikely anytime soon

The takeaway here is pretty evident: Social Security needs a little TLC from lawmakers in Washington if current and future beneficiaries are to avoid a substantial decline in their payout. This means raising additional revenue, as Democrats have suggested, reducing expenditures over the long term, as Republicans have proposed, or working out some middle-ground solution, which has, as of now, proved elusive.

However, the likelihood of reform occurring anytime soon appears to be slim to none, with my personal expectation gravitating a lot closer to "none" than "slim." All we need to do is read what President Donald Trump had to say regarding key social programs -- Social Security, Medicare, Medicaid -- at the Conservative Political Action Conference (CPAC) back in March 2013 for confirmation that reform is still a long ways off.

Trump said at CPAC, courtesy of the Washington Times:

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 solve our problems is to build a great economy." 

In simpler terms, Trump suggests that Social Security reform isn't an issue that Republicans can tackle prior to key elections. Why? Because the reality of the matter is that fixing Social Security means someone is going to lose. If Democrats increase the payroll tax earnings cap on the wealthy, then they'll have to pay more into the program without seeing any extra benefits come retirement.

Conversely, if Republicans are successful in raising the full retirement age -- the age at which you become eligible for 100% of your retired worker benefit, as determined by your birth year -- then future retirees would see their lifetime benefits reduced. No matter how Social Security is reformed, someone will lose out. And if Congress does nothing, then everyone loses.

But as Trump inferred more than five years ago, approaching reforms is something that only makes sense in a post-election environment. Given that the president is still more than two years away from a reelection bid, it seems very unlikely that any reform will be passed prior to November 2020. Should Trump win a second term, it may be possible, depending on the partisan breakdown of Congress, for reforms to be passed. But should Trump be just a one-term president, the cycle would begin anew with the following president, and likely push any opportunity for Social Security reform out to the midterms in 2022, or even more likely, the presidential election of 2024.

Time and again, lawmakers have demonstrated a penchant for sweeping issues under the rug until the 11th hour, and it looks like Social Security, which stands 16 years away from disaster, will be no different.

Related video: Social Security and Medicare's downward spiral (provided by CNBC)

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