By Sean Williams / The Motley Fool
Though it may not be what you want to hear, it's the honest truth: Social Security is in trouble.
Despite the fact that Social Security currently provides a monthly benefit check to more than 62 million people, and that 62% of aged beneficiaries lean on their payout to account for at least half of their monthly income, America's most important social program is less than two decades away from a major -- and potentially unpleasant -- change.
Social Security is 16 years away from a major shift
According to the most recent annual report from the Social Security Board of Trustees, the program is set to undergo a significant shift in 2018. Beginning this year and continuing with each subsequent year, program expenditures are expected to outpace revenue collected. Though we're only talking about a $1.7 billion net cash outflow in 2018 and $0.2 billion in 2019, these outflows are projected to really accelerate in 2020 and beyond. By the year 2034, Social Security's $2.9 trillion in asset reserves is expected to be completely depleted.
The good news is that Social Security doesn't need any excess cash in its coffers to continue making payments to eligible beneficiaries. Its 12.4% payroll tax on earned income, along with the highly unpopular taxation of Social Security benefits on select recipients, ensures that money will keep flowing in for disbursement.
The bad news is that this net cash outflow and projected depletion of the program's asset reserves shows the unsustainability of the current payout schedule. If Congress fails to deliver a solution to the estimated $13.2 trillion cash shortfall between 2034 and 2092, current and future beneficiaries could see their Social Security checks cut by 21%. That's terrifying news given the reliance of aged beneficiaries on the program.
But what you may not realize is that a handful of proposals from Donald Trump may actually be costing the program quite a bit of money over the long term (defined as the next 75 years by the Trustees report).
Trump's stance on DACA and immigration could be seriously hurting Social Security
In September 2017, the Trump administration announced its intention to end the Deferred Action for Childhood Arrivals program, which is more commonly known as DACA. This program protects in the neighborhood of 800,000 people known as "Dreamers" who'd entered the country illegally as children. For what it's worth, while a U.S. federal judge ruled in early August 2018 that the Trump administration must fully reinstate the DACA program, the legal battle over DACA rages on.
Just a month prior to announcing his intent to end DACA, Trump announced his support for a proposal to cut immigration into the U.S. in half over the coming decade.
Trump's tougher stance on immigration shouldn't come as a surprise to anyone, as it was a cornerstone of his presidential campaign in 2016. But what you might not know is that a tougher stance on immigration could adversely impact Social Security.
According to a September 2017 analysis from SocialSecurityWorks.org, Trump's anti-immigration policies could cost the program up to $2.4 trillion over the next 75 years. This assumes a halving in immigration over the long term, as well as the ending of DACA, which would reduce Social Security contributions by an estimated $33.1 billion over the next decade.
The reason we'd see such big dollar figures lost from Social Security is because immigrants contribute a lot to the program. For instance, the roughly 800,000 people protected by DACA are younger workers who'll be able to contribute to the program via the payroll tax for decades to come. Immigrants to this country, in general, tend to be younger, which means there's a long period of time with which to collect payroll tax from these folks before they'd even have an opportunity to collect a Social Security benefit.
Also, understand that in order to collect a Social Security retired worker benefit, immigrants would have to become legal citizens and earn the prerequisite 40 lifetime work credits needed to receive a monthly payout during retirement. Should these folks not follow a path to legal citizenship, they wouldn't be entitled to a retired worker benefit. According to AARP, around $12 billion was collected in payroll tax in 2010 from undocumented workers who (barring a path to legal citizenship) have no chance of ever collecting a benefit.
Conversely, the report notes that if immigration into the U.S. were doubled, Social Security would reap the rewards of an estimated $5 trillion in added income over the next 75 years.
Clearly, Social Security has a lot of issues to work through, and there are no guarantees that what Trump has proposed from an immigration standpoint would become the long-term policy of the United States. But the data would appear to suggest that immigrants have played and will continue to play an important role in the long-term health of the Social Security program.
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