Donald Trump's Potential Presidency Raises Questions About Social Security and Medicare
If the polls, gamblers, and bookmakers are accurate, Donald Trump is likely to secure the Republican nomination for president and is also becoming the favorite to win the election. As the next president will need to address the impending crisis at Social Security and Medicare, it begs the question: What will former and potentially future president Trump do about it?
During his campaign, Trump has been swift in criticizing rivals who have suggested cutting or restraining the growth of spending on Social Security and Medicare. He has gone as far as labeling Florida Governor Ron DeSantis as a "wheelchair over the cliff kind of guy," reminiscent of a famous attack ad by Democrats in 2012. Similarly, he has repeatedly attacked Nikki Haley, his remaining rival, claiming she wants to "gut Social Security and Medicare and raise the retirement age by 10 years." However, Haley's proposals for these programs are relatively mild and would not affect anyone over the age of 30.
The relevant issue at hand is not whether Trump can criticize others for their ideas on balancing the books of Social Security and Medicare, but whether he, as the frontrunner for the Republican nomination and potentially the president, has a plan of his own. If he assumes office in January, he will presumably have a Republican Congress to work with. As his potential second term would extend until January 2029, the question arises: What will Trump and his Republican allies in Congress do about Social Security and Medicare during that time?
By the time Trump's potential presidency would end, Social Security's trust fund would be just four years away from insolvency, while Medicare's trust fund would be two years away. Unless swift action is taken, this could result in a catastrophic collapse in benefits. In other words, retirees could face a 20% cut in Social Security checks across the board, affecting both current retirees and those close to retirement.
This crisis affecting Social Security and Medicare is intricately linked to the broader crisis facing the federal government. It is crucial to understand that there are no separate crises facing "the deficit" and "entitlements" – they are intertwined. The trust funds are merely accounting fictions.
Recently, the U.S. Government Accountability Office warned that the federal government's long-term fiscal path is unsustainable. The national debt is projected to more than double over the next 30 years, posing significant economic, security, and social challenges if left unaddressed. The Comptroller General and head of the GAO, Gene Dodaro, emphasized that the growing federal debt level threatens the nation's economy and the well-being of its people. The majority of government spending growth is driven by Social Security, healthcare (including Medicare), and interest on the debt.
In 2000, the U.S. national debt stood at just $3.4 trillion, roughly one-third of the annual gross domestic product (GDP). Today, it has ballooned to $24 trillion, almost 100% of GDP – the highest level since World War II. If the current trajectory continues, it is projected to reach 200% of GDP by 2050.
Trump has made promises to extend his 2017 tax cuts, set to expire next year, and even further reduce taxes. According to Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, the initial tax cuts added $2 trillion to the national debt, and extending them would contribute an additional $3 trillion.
While Trump has suggested certain measures to generate government revenues, such as licensing more oil and gas drilling on federal land and implementing significant tariffs on imports from countries like China, the numbers do not seem to add up. Even under an optimistic view of the potential revenue from tariffs, they would raise approximately $2 trillion over the next decade, which falls short of covering the cost of extending the 2017 tax cuts.
As Trump moves closer to securing the nomination of his party and potentially being re-elected, it is vital that he provides a comprehensive explanation of his plans for addressing the issues concerning Social Security and Medicare, if he indeed has any plans at all.
Analyst comment
Neutral news. In terms of market impact, there may be uncertainty surrounding Trump’s plans for Social Security and Medicare. If action is not taken, there could be a catastrophic collapse in benefits for retirees. The wider crisis facing the federal government, including the growing national debt, poses economic and social challenges. Trump’s promises to extend tax cuts and cut taxes further may add to the debt. His proposed revenue generation ideas may not be sufficient to offset the costs. Investors may be looking for a clearer explanation of Trump’s plans.
