What are the odds that Donald Trump will propose a plan to address Social Security’s long-term funding deficit?

If you're thinking of a fix in terms of a higher earnings cap, or higher FICA taxes, or a higher retirement age, then the odds are frankly low.

That's because President-elect Trump would tell you that he already has another plan to fix the system, even though experts would tell you it isn’t much of a plan.

During the campaign, when asked what he would do to fix Social Security, Trump responded by saying he would not increase revenue for the federal program (by raising taxes), or decreases costs (by cutting benefits). But he still had a great plan that focused on just one thing: much higher rates of growth for our economy overall.

Bloomberg News

He believes his economic policies, such as they are, can increase the annual economic growth in the U.S. from the 1% to 2% that we have been experiencing over the last six years to 3% to 5%.

If Trump is successful with his indirect plan to help Social Security, those higher rates of growth will create millions of new jobs, resulting in millions of new employees paying FICA taxes. This will create a flood of new revenues into our Social Security system and eliminate the funding shortfall.

This, however, means that in Trump’s first term, he has no plans to directly address the Social Security funding issue. Granted, he'll be busy getting his economic policies implemented, including lower taxes for both individuals and corporations and decreasing the regulatory burden for businesses. But it could take years for the effects of these policies to show up in the economy and new FICA tax revenue.

Indeed, with both houses of Congress controlled by Republicans, President Trump presumably will have a much easier time getting these economic policies passed than he would any proposal that directly addresses the Social Security funding issue.

However, the smaller tweaks to the program can have an immediate impact. Just last month, the earnings cap was increased to $127,000 from $118,500. And there are cost of living adjustments, although the most recent COLA was less than a third of a percentage point, and last year there was no increase at all. (That's because these increases are based on inflation so for the years when the CPI is near zero, the COLA increases follow suit.)

If Trump’s plan doesn’t work, on the other hand, we won’t discover that for years, and by then it will be much more costly to fix the system resulting in even higher tax increases and/or bigger benefit cuts.

Register or login for access to this item and much more

All Bank Investment Consultant content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access