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2017 could ruin Social Security for millennials

(AP Photo/David Goldman, File)

(AP Photo/David Goldman, File)

Social Security is a 2034 problem for most of our parents, but for Donald Trump that challenge is now — 2017.

Here is the problem that few people are talking about: The GOP can deliver the best economy in a decade and the system will still show erosion.  It can double the economic growth of the Obama years, and the system will still lose ground. Given that millennials are the ones who will inherit the cost to clean-up the erosion, you need to understand why.

During the campaign, Donald Trump repeatedly told voters that he could change the course of the system with an improved economy. More jobs equal more revenue, he said. While that statement is true, his statement is open to the question: more than what? The success or failure of his vision isn’t measured against the past. For the more jobs, more revenue story to positively affect the system’s finances, the revenue has to beat the estimates of the Social Security Trustees.

That is trouble because the projected solvency of the system is based on projected revenue.

Why is 2017 so difficult? The reason is the Trustees have based 2034 on high expectations for the economy. In the last report which cut-off at 12-31-15, CY 2016 was the last low-bar. The GOP can deliver the best results in a decade, the system continues to deteriorate. That year enjoyed a wind-aided affect of the payroll tax holiday which provided a subsidy of more than $100 billion for job creation.

In the most recent report, the Trustees expected the payroll taxes to increase by roughly 3.5 percent during 2016.  The economy more than delivered that result. The estimates rise, however, for 2017 through 2020 to an average of 5.75 percent growth. That is a full percent above the average over the last five years, ~ 4.5 percent.

This is why 2017 is so important. Failure tends to offer a waterfall effect.  If we miss in 2017, the Trustees may have to lower the results for 2018, which means lowering the numbers for 2019, and so forth. The revenue lost in 2017 is small compared to the problems created by lowering future revenue expectation.

Honestly, I do not know why the Trustees expect payroll tax revenue to increase 5.75 percent in 2017.  Maybe there was a hidden baby boom that is now joining the work force.  Maybe they expect average wages to rise, or for people to work longer hours.

I do know that Trump campaigned on the idea that a better economy would deliver more revenue. It is entirely possible that Trump can accomplish everything he has promised and the projections for the system will lose two or three years in a single report.

Read a more on this from Brenton Smith here.


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