2024-10-29 00:09:00
By Paul Krugman, Nobel Prize winner in economics.
While I have assumed in the past that Social Security would be bailed out if necessary, that seems less certain in the undemocratic nation we could become if Trump wins.
Remember when George W. Bush tried to privatize Social Security? I was very involved in that debate and one thing I learned is that the Wealthy Americans, who typically have large sums stashed in their retirement funds and own other assets, often have no idea how important Social Security is to their less well-off compatriots. Social Security benefits account for more than half of many retirees’ income, and a significant number of them have little else to live on.
So it’s important to be aware that one consequence of Donald Trump’s economic proposals, if passed, could be to bankrupt Social Security, impoverishing many older Americans, not in the distant future, but within about six years. And while I have assumed in the past that Social Security would be bailed out if necessary, that seems less certain in the undemocratic nation we could become if Trump wins.
First things first: Social Security is a government program, counted as part of federal spending. So how can a single program go bankrupt if the federal government as a whole remains solvent (which, Trump notwithstanding, will likely happen)?
The answer is that Social Security has its own independent budget. If you have proof of wages, you will see that there is a deduction for the Federal Income Tax Act (FICA), the federal payroll tax. Your company pays the same amount, and if you include the company share, about two-thirds of Americans pay more in payroll taxes than in income taxes. Most payroll tax revenue goes to Social Security. (The rest funds part of Medicare.)
This system, in which contributions from working-age Americans pay for senior benefits, has come under pressure from an aging population, which has increased the ratio of beneficiaries to workers. But everyone has known this for a long time baby boomers [los nacidos durante la explosión demográfica posterior a la Segunda Guerra Mundial] Sooner or later they would stop contributing and start withdrawing money, so, as early as the 1980s, measures were taken to shore up Social Security’s long-term finances. These measures included increasing the payroll tax rate, linking benefits to income tax, and gradually raising the age of access to all benefits from 65 to 67.
These measures allowed Social Security to run large surpluses for a couple of decades and set up a trust fund that could be used to help pay benefits once workers baby boomers They began to retire. The plan was to keep the system actuarially sound for 75 years, but the solution appears to be falling short, largely due to growing inequality. Congressional Budget Office projections indicate that, under current rules, the trust fund will be depleted in 2034. At that point, benefits would immediately be reduced by 23%, and perhaps more in subsequent years, according to Budget Office estimates. to match revenue, unless something else is done to fill the gap.
Until recently, I took it for granted that something would actually be done to maintain retiree benefits; After all, the elderly vote and there would be a huge wave of protests against politicians who would decree a sharp reduction in their income. But Trump has now made me reconsider that premise.
As a new report from the Committee for a Responsible Federal Budget (CRFB) points out, Trump has introduced multiple proposals that would undermine Social Security finances. These include exempting Social Security benefits, tips and overtime pay from taxes. And perhaps less obvious, Trump’s tariffs would cause prices to rise by increasing Social Security cost-of-living adjustments. And deporting immigrants living in the country illegally – many of whom pay payroll taxes – would make the situation even worse.
The CRFB estimates that these policy actions would cause the trust fund to be depleted in fiscal year 2031, and since we are already in fiscal year 2025, we are only six years away; Payable benefits would also fall more steeply, immediately decreasing by about a third. And in my opinion, even these numbers are overly optimistic, because they don’t take into account the economic chaos that Trump’s tariff and deportation policies would likely create.
However, as I said, in the past I have assumed that once the trust fund was exhausted, Congress and the president would do whatever was necessary to maintain the benefits. Why isn’t that my default assumption yet? One answer is that Trump’s plans would make the hole in Social Security’s finances much larger, weakening the economy and adding trillions to the national debt. That would make it harder to get money for a Social Security bailout.
But there is an even more important question. I have argued that Social Security will almost always be protected because older people vote. But this is only relevant because we live in a democracy, and democracy, as political scientists like to say, “is a system in which parties lose elections.”
The United States will still be a democracy in this sense if a former president who tried to overturn the results of previous elections – a man branded a fascist by one of his own Joint Chiefs of Staff and one of his own Joint Chiefs of Staff – takes back the candies? And if we stop being the kind of democracy we have been, will the votes of the elderly really matter? The fate of Social Security isn’t my main concern if Trump wins – I’m more concerned about his threat to democracy – but it’s certainly on the list.
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