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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.  

Celebrating Older Americans Month

Chances are if you, or anyone in your family, is 65 or older your life has been impacted by an Older Americans Act program.  From Meals on Wheels to senior centers, prevention of physical and financial abuse, computer training to legal assistance, OAA programs touch the lives of millions of seniors and their families.  This myriad of programs provides home and community-based services making it possible for older adults to remain independent, but they’ve continually faced flat or shrinking budgets at a time of growing needs.  Funding programs that allow seniors to age in place is cost-effective; however, the Older Americans Act languished for more than 5 years without Congressional reauthorization. 

Thankfully, this year is different.  Today we are celebrating Older Americans Month with a newly reauthorized OAA, signed by President Obama just a few weeks ago:

“The President believes in the Older Americans Act because it funds services that are central to older adults’ health and lasting independence, such as meals, job training, transportation, and health promotion.  And for those who do need consistent care, the law provides nursing home protections and enhances the Long-Term Care Ombudsman programs.”  Valerie Jarrett, Senior Advisor and Assistant to the President

The celebration continues as The Leadership Council of Aging Organizations (@LCAgingOrgs), chaired by the National Committee, will host a Twitter chat on May 24 @ 1-2 p.m. ET to celebrate Older Americans Month—and call for funding investments in Older Americans Act programs. You’re invited to join the chat using #WeAreOAA.

Join at www.twitter.com/#WeAreOAA or at http://twubs.com/WeAreOAA

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 Retirement Challenge Threatening Our Mothers

Money posed an interesting question today in advance of Mother’s Day weekend...

 What's better than flowers for mom?  A fatter 401(k).

While you’re not likely to go out and set up a 401K for mom today you should be aware of the inherent and serious challenges our mothers are facing in retirement.  NCPSSM’s President/CEO, Max Richtman, describes it this way:

“Women earn less than men even when doing the same jobs, they more often work part-time or in jobs that do not offer retirement savings plans, and they tend to spend more time out of the workforce as a consequence of their caregiving responsibilities. Women could lose $430,480 in earnings over the course of a 40-year career due to the wage gap alone.  For Latinas the career losses mount to $1,007,080, and for African American women the losses are $877,480. Lower career earnings also translate to fewer savings for many women in retirement. At the same time, their longer lifespan and higher chances of disability means that they will have higher retirement costs, both for everyday expenses and necessary medical care.” 

Is it any surprise that the thought of running out of money in retirement keeps 57% of women awake at night?  Finding ways to eliminate this retirement inequity is at the heart of our Eleanor’s Hope initiative. Named in honor of First Lady Eleanor Roosevelt, this campaign raises awareness, recruits and trains new activists and bolsters Congressional leaders who are making a difference on women’s health and retirement security issues.  We are also advocating for legislation that addresses the inequities threatening millions of retired women and working to elect lawmakers who share our vision of retirement equity for women. 

There are a number of proposals which, if adopted, could significantly level the playing field for women and reduce the threat of poverty in their old age: 

Gender Pay Equity. Eliminating the wage gap that limits women’s earnings is essential to helping our daughters and granddaughters save for their own retirement. Congress should strengthen and reform the “Equal Pay Act” by putting an end to pay secrecy, strengthening workers’ ability to challenge discrimination and bringing equal pay law into line with other civil rights laws.  

Caregiver Credit. Compute the Social Security benefit by giving an annual caregiver credit for each year of caregiving so that total earnings for the year would equal 50 percent of that year’s average annual wage. Caregiving service years would be those in which an individual provides care to children under the age of six or to elderly or disabled family members. Up to five family service years could be granted to any worker.

Improve Survivor Benefits. Increase the benefit paid to a surviving spouse to an amount that is equal to 75 percent of the total combined benefits that were paid to the couple prior to the spouse’s death, capped at the benefit level of a lifelong average earner.

Consumer Price Index for the Elderly. Adopt the Consumer Price Index for The Elderly (CPI-E) for the purpose of determining the amount of the cost-of living adjustment (COLA) adjustment for Social Security benefits. This is especially important for women who tend to receive benefits longer because they live longer.

By all means, please go ahead and buy those flowers for mom this weekend.  Also consider getting involved with our Eleanor’s Hope campaign to ensure generations of American mothers can enjoy a retirement free of worry and poverty. 

 

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