The importance of Social Security for our nation's retired workers simply can't be overstated. Though the average payout, as of November 2016, of $1,355 to the nearly 41.2 million retired workers may not seem like a lot, an analysis conducted by the Center on Budget and Policy Priorities estimated a 32-percentage-point decline in elderly poverty rates as a result of Social Security income being available to seniors during their golden years.
Despite being such a critical program for seniors, Social Security is itself not in the best shape, at least over the long run. Two major demographic shifts -- the ongoing retirement of baby boomers and lengthening life expectancies over the past five decades -- are expected to turn Social Security's net cash inflow into an annual outflow by 2020. By the year 2034, the Social Security Board of Trustees projects the Trust's more than $2.8 trillion in spare cash will be exhausted. Should this happen, across-the-board benefits cuts of up to 21% could be needed to sustain Social Security through 2090.
It's this expected budgetary shortfall that's left many lawmakers in Washington scrambling for an answer as to how best to reform Social Security.
Trump, Republicans weigh in on Social Security
President-elect Trump, who's set to take office in just a few weeks, offered a very minimalistic approach to Social Security reforms during his campaign. Rather than addressing specific policies that would alter the program, Trump suggested leaving Social Security untouched in its current form.
Image source: Disney-ABC Television Group, Flickr.
Instead, Trump wants to have an impact on the greatest revenue generator for Social Security: its payroll tax. In 2015, payroll taxes made up more than 86% of the revenue collected by the program, with interest earned on its spare cash and the taxation of Social Security benefits comprising the remainder. Trump plans to boost payroll tax revenue by cutting individual and corporate income tax rates, increasing infrastructure and defense spending, and renegotiating trade deals. If wage growth increases and consumers are earning more, they'll be paying more in payroll taxes and possibly helping to close Social Security's budgetary shortfall.
RELATED: Important Social Security facts and figures you should know:
However, not all of Congress sees eye-to-eye with Trump on Social Security.
For example, earlier this month the chairman of the Ways and Means Social Security subcommittee, Sam Johnson (R-TX), offered up the Social Security Reform Act of 2016. Johnson's legislation is designed to make sweeping reforms to seniors' most prized social program, including raising the retirement age, boosting benefits for lower-income retirees, ending the taxation of Social Security benefits, and readjusting how inflation is factored in annually by switching to the chained Consumer Price Index from the Consumer Price Index for Urban Wage Earners and Clerical Workers. Johnson's plan to save Social Security is a stark contrast to Trump's hands-off approach, and it begs the question whether or not Trump will be able to honor his campaign commitment to leave Social Security alone while in office with so many Republicans in Capitol Hill fighting for reform.
This new Trump appointee could push for Social Security reform
The challenge for Trump to leave Social Security alone may have been made even harder by his selection of Rep. Mick Mulvaney (R-SC) as the director of the White House Office of Budget and Management one week ago.
Sen. Mick Mulvaney (R-S.C.). Image source: Mark Taylor, Flickr.
According to a statement from Trump, Mulvaney will help with "reining in out-of-control spending, fighting government waste and enacting tax policies that will allow working Americans to thrive." What it'll also do is put a staunch fiscal conservative who strongly opposes more national debt and believes in a balanced budget in charge of overseeing the incoming president's budget and ensuring that all of the numbers add up.
On one hand, the selection of Mulvaney suggests that Trump is going to take a hardline stance against the United States' growing national debt, even as he's advocated spending $1 trillion on infrastructure over the next decade. Mulvaney is not shy about going against members of his own party when it comes to reducing debt and balancing the budget.
However, part of Mulvaney's solution could involve finding ways to reform so-called entitlement programs such as Social Security, Medicare, and Medicaid, which, when combined, currently suck up around half of all federal spending in a given year.
Back in 2011, Mulvaney introduced the Balancing Our Obligations for the Long Term Act, also known as the BOLT Act, which sought to enact a number of measures to reduce Congressional spending and balance the budget. It would have capped long-term spending, required Congress to review long-term budget trends every five years, and authorized the reconciliation of long-term savings in Social Security, Medicare, and Medicaid. In other words, Mulvaney's bill would have tightened America's belt, Social Security included.
Image source: Getty Images.
In addition, InsideGov, a nonpartisan website that aims to better explain how the U.S. government works, notes that Mulvaney favors at least some degree of Social Security privatization (which is ironically the same position Trump favored 16 years ago in his book, The America We Deserve). A partial privatization of Social Security would allow Americans to invest a percentage of their benefits however they'd like, putting them in greater control of their financial future. While that might be great for some people, those with little to no financial knowledge, or those taking big risks, could find themselves in even worse shape once they retire.
To be crystal clear, Mulvaney's affinity for running a tight ship doesn't mean he'll necessarily push Trump for Social Security reform. However, it's tough to ignore previously introduced legislation when we're discussing an appointee who will play a critical role in helping Trump orchestrate a workable budget.
For you working Americans, this is just one more reminder that you need to have alternative sources of income during retirement than just Social Security.