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From the category archives: entitlement reform

Trump’s Debt Idea = Social Security Default

 

The latest idea from Donald Trump, the GOP Presidential candidate and self-proclaimed “king of debt,” would have devastating effects on the Social Security Trust Fund. While we could write pages on the Treasury bond market, federal debt and the Social Security Trust fund, chances are you wouldn’t want to read it, so instead, here is a quick summary of the issue.  

Starting first with The Donald’s plan to run the U.S. government like one of his failing casinos.  He described it on CNN:

“If we can buy back government debt at a discount -- in other words, if interest rates go up and we can buy bonds back at a discount -- if we are liquid enough as a country we should do that. ... People said I want to go and buy debt, and default on debt. These people are crazy. This is the United States government. First of all, you never have to default because you print the money, I hate to tell you, OK? So there's never a default. ... I'm the king of debt. I understand debt better than probably anybody. I know how to deal with debt very well. I love debt. But, you know, debt is tricky, and it's dangerous; you have to be careful, and you have to know what you're doing.”

Both the Motley Fool and The Economist have raised red flags on what this strategy would actually mean for the Social Security Trust Fund -- which has $2.79 trillion invested in Treasury notes that Trump is apparently willing to devalue.

“Debt issued by the U.S. government is done so with the ‘full faith and credit’ of the United States. To consider allowing U.S. debt to get into a situation that incites a crash in bond prices would probably undermine the high quality ratings bestowed on U.S. debt and raise major red flags in the U.S. stock market and in markets around the world that look to the U.S. as a rock-solid financial leader.

The single largest holder of U.S. debt is the Social Security Trust, which held 16% of outstanding national debt at the end of Q1 2013. Other federal programs holding U.S. debt include the Medicare Hospital Insurance Trust, military retirement fund, and federal civil-service retirement and disability fund. If Trump were to consider buying back debt at a discount it would potentially reduce the investment value of the Social Security Trust, which generally invests its cash reserves in extremely safe, interest-bearing U.S. Treasury notes. Doing so could wind up hurting current and future retirees who depend on this key federal program."

The Economist reminds us this approach is what got Greece into so much fiscal hot water:

“The idea, it seems, would be to get creditors {editor’s note: in the case of the Social Security Trust Fund that’s seniors, the disabled and survivors} to accept less than 100 cents on the dollar. This happens with corporate bankruptcies; if the market price has fallen to 60 cents on the dollar, and been snapped up by specialist hedge funds, then redeeming the debt at 70 cents on the dollar may be a good deal. Emerging economies have done the same in the past when they have fallen on hard times; it happened in Greece.

But with Treasury bonds, investors expect to get 100 cents on the dollar. It is the risk-free asset that underpins the entire global financial system. A forced deal, of course, would count as a default. Treasury bonds are at the heart of the financial system. Banks use them as collateral for loans; insurance companies hold them as reserves; pension funds own then to fund retirement benefits; mutual funds own them as well. Any default within the system would have cataclysmic consequences for the economy that would far outweigh any gains in refinancing costs. To cap it all, the Federal Reserve owns almost $2.5 trillion of Treasury bonds and the Social Security Fund some $2.8 trillion. So the government would, in part, be defaulting to itself.

In short, this seems like a completely nonsensical idea. Do you think it is possible that Mr Trump didn't think it through and just said the first words that came into his head? Couldn't be.”

The takeaway from all of this is that Donald Trump’s claims that he’ll “leave Social Security alone” is an empty promise because, if his debt plan becomes reality, the Social Security Trust will lose years of solvency and the billions of dollars contributed to the Trust Fund by American workers will actually be worth only pennies on the dollar.  

Trump Campaign Admits They’re Open to “Entitlement Changes”

It was just a matter of time...

The Trump campaign was a participant in yesterday’s annual Pete Peterson fiscal summit which each year brings together the nation’s so-called “fiscal hawks” for a full day of doom-and-gloom prognosticating about how Social Security and Medicare will bankrupt America.  In case you’ve forgotten, multi-billionaire Wall Streeter and former Nixon Commerce Secretary Pete Peterson, has committed to spend a billion dollars in his war on America’s safety net programs.  This annual wing-ding for Washington’s “very important people” is just one of the many ways he spends that money. 

Now, you might think Donald Trump would be an unlikely guest at this event given his break from conservatives and often-stated position that he won’t cut Social Security and Medicare. In truth, Trump’s campaign was right at home with the Peterson crowd as his chief policy advisor, Sam Clovis, provided participants a fuller description of what Trump actually plans if elected President. It was music to the anti-Social Security crowd’s ears:

“After the administration has been in place, then we will start to take a look at all of the programs, including entitlement programs like Social Security and Medicare. We’ll start taking a hard look at those to start seeing what we can do in a bipartisan way.”

“...I think that whoever [is] the next president is going to have a horrible time in dealing with this, because those entitlements will race to the front of all the economic issues we have in this country.”

In other words, candidate Trump will continue to promise no cuts to Social Security and Medicare on the campaign trail.  However, President Trump clearly has a very different plan. 

As in all things Trump, he’s provided himself an out.  If voters read the fine print, Trump’s claims to leave Social Security and Medicare are completely dependent on the full adoption of his ever-morphing economic plan which promises budgetary magic turning a nearly $10 trillion deficit into a $7 trillion surplus (while also cutting taxes even further for corporations and the wealthy, increasing military spending, building a massive wall and deporting millions).  Even conservative columnists, who are thrilled to hear he is willing to cut Social Security and Medicare, left the event stunned:

“Clovis’s fiscal insouciance was breathtaking. ‘Our proposals, what we think will happen, will lead us in fact to about a $4.5 to $7 trillion surplus at the end of 10 years, if all of our initiatives are put in place,’ he said.

Pause for a moment to appreciate the audacity of this claim. The Congressional Budget Office estimates that deficits will total another $9.4 trillion during this period. So Trump is purporting to pay for his $10 trillion tax cut, plus eliminate that additional deficit, plus amass a surplus amounting to several trillion more? Outlandish is too kind a word for this.” ...Ruth Marcus, Washington Post columnist

“I understand less about Trump’s budget plan after listening to Clovis than I did before,” tweeted David Wessel of the Brookings Institution.

Maybe so...but Trump’s real plans for Social Security and Medicare are now much clearer.  

No One Really Knows What Trump Plans for Social Security...Possibly Including Trump Himself

Donald Trump’s flip-flopping on his tax plan this week has many politicos scratching their heads.  ABC reported it this way:

“As Donald Trump pivots to the general election battle, he's already walking back his tax plan, the most specific policy proposal he has released during the campaign. 'By the time it gets negotiated, it's going to be a different plan," Trump told George Stephanopoulos on ABC News' This Week.

In Trump’s tax plan, the wealthiest individuals would get a tax break, with the top tax rate dropping from 39.6 percent to 25 percent. But when pressed if he wants taxes on the wealthy to go up or down, he predicted that the top rate would be higher than the plan says. ‘On my plan they're going down. But by the time it's negotiated, they'll go up,’ Trump said.”

Well, of course any President’s budget plan, tax plan, Social Security plan, Medicare plan (...you get the idea) will be negotiated with a Congress which may hate the idea.  That’s why it’s called a “plan” and not “law.”  Doesn’t that really go without saying?  So what is “The Donald” actually proposing as the presumptive GOP nominee for President?

The Campaign for America’s Future noted Trump’s very similar approach on the minimum wage:

“What Trump actually did was say he would “like to see an increase” then took a position against using presidential power to mandate an increase – and, arguably, against having any federal minimum wage at all! – in deference to the states. It’s lovely that his wish is for those states to propose increases, but refusal to promote federal legislation makes him no different from every other Republican who opposes a federal minimum wage increase.”

So that leads us to the current Trump 2.0 campaign plan (please read our earlier post to compare Trump’s polar opposite views between campaigns) to not cut Social Security and Medicare.  Of course, that’s a “plan” too and there are many in the GOP House and Senate who don’t agree, so does that mean this plan is just as illusory as his now morphing tax plan and minimum wage plan?  More importantly, in direct relation to his convoluted tax musings, does Donald Trump oppose raising the payroll tax cap so that the wealthy contribute to Social Security based on their full income just as middle-class and poor Americans do? 

We certainly don’t know and wonder...does Donald Trump? 


The Cruz/Fiorina Plan for Social Security and Medicare

Here’s a “Throwback Thursday” reminder of what a Cruz/Fiorina administration would mean for millions of Americans and their families who depend on Social Security and Medicare.

...at least what they’ll admit to today, anyway.  


The Retirement Security Gap Between America’s Rich and Poor Continues to Grow

New GAO Report Provides Startling Details on Disparities and Their Impact 

on Social Security Benefits


Growing disparities in life expectancy between America’s rich and poor are eroding the progressive nature of Social Security. A new Government Accountability Office (GAO) report, requested by Senator Bernie Sanders, shows that low-income American men will lose 11%-14% of their lifetime Social Security benefits while high-income men will see a 16%-18% benefit boost due to this growing gap.

“This report is especially important when you consider the political push to raise Social Security’s retirement age to reduce benefits.  Forcing average Americans to delay retirement until 70, as suggested by some in Washington, would mean even smaller benefits for lower-income groups.

The National Committee to Preserve Social Security and Medicare has long opposed increasing the Social Security retirement age as nothing but a cruel cut in benefits, and this GAO report shows exactly how cruel it would be.  Instead of cutting Social Security, Congress should boost benefits so that Social Security can continue to fulfill its promise providing an adequate base of income for America’s seniors.  Our thanks to Senator Sanders for his strong leadership in requesting this important report. It’s a must-read for any candidate who truly cares about keeping America’s promise of retirement security.”...Max Richtman, NCPSSM President/CEO

America’s wealthiest are not only living longer and collecting more Social Security benefits, they are also contributing less to the program than at any time in recent history. In the past, the Social Security tax cap has been set at a level that covered about 90 percent of all earnings. Currently, however, only about 83 percent of earnings are subject to the Social Security payroll tax. This means the wealthy, who’ve benefited from disproportionate wage growth, have also been exempt from paying into Social Security on those gains above the $118,500 cap.

The National Committee supports legislation, including Senator Sanders’ “Social Security Expansion Act”, which would lift the payroll tax cap, boost benefits and adopt a cost of living formula for seniors. 

You can read the GAO report here.

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