Trump may allow $5k stimulus check in exchange for delayed Social Security

track stimulus check Protection COVID uunemployment insurance Employee Retention Tax Credit social security stimulus checksAnestiev / Pixabay

After the $2 trillion economic stimulus package, everyone is eagerly waiting for the next round of benefits. However, if the reports are to be believed, the Trump administration, which is now concerned about the growing national debt, is considering using social security benefits to arrange for stimulus checks.

Turning Social Security into stimulus checks

As per a report from The Washington Post, the Trump administration is considering a proposal to allow workers to get some Social Security retirement benefits early. Usually, one needs to be at least 62 and have paid into the system for a minimum of ten years to get Social Security benefits.

The White House, however, is reportedly considering a proposal to allow citizens to withdraw up to $5,000 from Social Security now. For those taking the offer, the benefits will be slightly delayed in the future.

As per the proposal, this $5,000 would be structured as a loan, which will carry a government-set interest rate. This loan needs to be reimbursed to the Social Security trust fund with interest.

Thus, those who avail themselves of this $5,000 program would need to pay back the money when they become eligible to get Social Security benefits. This means their initial Social Security checks (up to three months) will go towards repaying the loan. After the loan is paid, they will continue to get benefits normally.

Those who choose not to opt for the program won’t face any delay in their Social Security retirement benefits. Andrew Biggs of the American Enterprise Institute and Joshua Rauh of the Hoover Institution at Stanford University have developed this plan.

In an opinion piece in The Hill, the two noted that those opting in would have the balance carried forward at a “specified and favorable government interest rate until the time they choose to claim Social Security,” with the loan then being “repaid out of the very first Social Security checks that individuals would otherwise receive, after which their full Social Security check would be restored.”

Why it may actually pass?

The stimulus payments under the CARES Act are fully deficit financed. Thus, Biggs and Rauh argue that financing stimulus checks with Social Security would not only ensure money for those who need it, but would also not add to the national debt.

Further, the duo say that since the $5,000 loan would be “collateralized with obligations owed by the federal government,” the interest rate would be very affordable. Also, Biggs and Rauh argue that this program would overcome the weaknesses of the first round of stimulus payments.

In the first round, stimulus payments were sent to every qualifying American. But, the new proposed program would be optional, meaning only those in need would opt-in. Since the repayment is not in the short-term, the borrowers wouldn’t have to worry about paying it back immediately.

Even to the general public, it may appear attractive if we go by a behavioral economics approach. As per this approach, people value smaller but immediate rewards over bigger rewards later. Thus, there are good chances that many cash-strapped Americans may opt for this program and delay their social security benefits by a few months.

Meanwhile, Democrats and Republicans continue to debate over the next possible coronavirus stimulus package. Several proposals have come from Democrats supporting additional and recurring direct aid.

Recently, Senators Edward Markey, Kamala Harris, and Bernie Sanders proposed a Monthly Economic Crisis Support Act. The proposal asks for $2,000 monthly payments for those struggling financially due to the COVID-19 pandemic.

What do experts say?

Social Security advocates are concerned that such a plan could trigger more efforts to limit the program going forward. Social Security currently helps about 45 million retired workers, who get average benefits of $1,503 per month.

The executive director of the Alliance for Retired Americans, Richard Fiesta, says that a program asking people to give part of their future Social Security benefits to survive the present economic crisis is a “harebrained idea,” according to CNBC.

Others also question the real intent of a proposal that makes use of a health emergency to attack Social Security. They say that accepting such a proposal would pave the way for future governments to make even deeper cuts in Social Security.

Social Security advocates argue that such proposals go against the very reason why Social Security came into existence – and that is to provide financial security in old age. Further, many also say the program would impact those who need Social Security the most.

There are also questions about how the people who opt for this program now will make their living for the three months later. As per the data from SSA (Social Security Administration), Social Security makes up 90% or more of the total income for 44% of unmarried and widowed elderly women.

It would be interesting to see whether or not this proposal turns into law. Trump, during his 2016 presidential run, vowed to protect Social Security and Medicare from cuts. However, in his annual budget blueprints, Trump has proposed cutting both programs. Even earlier this year, during an interview at the World Economic Forum in Davos, Trump said he would consider trimming Social Security and Medicare if he gets reelected.

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About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at [email protected]

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