Trump Wants to Take Your Social Security to Give Even More Money to Wall Street

Scott Bessent, Donald Trump’s Treasury Secretary, let the cat out of the bag when he said that their new “Trump Accounts” are intended as a backdoor way to privatize Social Security. Their idea is to get people to put money in these accounts beyond the $1,000 the government will give each newborn, so that they will be able to phase out or scrap Social Security. Your “Trump Account” will serve as a replacement.

This has been a longstanding dream among Republicans. They have hated Social Security ever since Franklin Roosevelt created it in 1935 and taxes started to be collected two years later. Now they think Donald Trump has finally given them the weapon needed for the program’s destruction.

Their hatred is understandable. Social Security is an incredibly successful government program that does exactly what it was designed to do. It provides workers with a core retirement income that ensures people will not be in poverty in their old age. It also provides insurance against disability, as well as providing benefits to children and surviving spouses of workers who die young.

It does this with a minimum of fraud and abuse, as Elon Musk and his DOGE team inadvertently showed earlier this year when their clown show came up empty-handed. It also is incredibly efficient. The administrative costs of the retirement program are just 0.4 percent of the benefits paid out. By comparison, a private sector pension system would cost more than 40 times as much.

For all of these reasons, Social Security is hugely popular: Polls regularly show approval ratings of more than 80 percent, with Republicans liking the program just as much as Democrats.

It is easy to see why Republican politicians want to destroy it. After all, if the government can do a great job running a retirement program, maybe it can also provide healthcare insurance, and who knows, maybe even pay for our kids to go to college. Republicans hate good examples of government functioning smoothly.

They also hate the fact that the program is so efficient. The money the public saves from an efficient Social Security system could instead be trillions of dollars in fees to Wall Street and the financial industry. This is why privatizing Social Security is a longstanding dream for Donald Trump and his crew.

 No, Social Security Is Not in Financial Trouble

In assessing the case for privatization, it is first important to knock down the big lie that Social Security is going broke. It is true the system is projected to face a shortfall in eight years, but there are three important points to be made about this projection.

First, even if it proves exactly right, the program will still be able to pay close to 80 percent of benefits. No one wants to see benefits cut by 20 percent, but we should be clear: It will always be possible to pay the vast majority of benefits under any plausible scenario.

The second point is that one of the main reasons the program is projected to face a shortfall is that we have redistributed so much income upward to Donald Trump and his rich friends. There is an income cap on Social Security withholdings — which means that earnings above that amount ($176,100 in 2025) are not subject to the Social Security tax. In 1982 — the last time there were major changes to the Social Security system — only 10 percent of wage income escaped taxation by being over the cap Currently, close to 20 percent of wage income escapes taxation as a result of being above the cap

There has also been a redistribution from wages to profits. Since only wage income — and not dividends and capital gains — are subject to the tax, this redistribution has further hurt the program’s finances. For politicians to scream that Social Security can’t pay your retirement benefits after they engineered the redistribution away from workers is true Republican hypocrisy.

This brings us to the last point: the decision to not pay full benefits would be a political one, not an economic one. If we actually do have a 20 percent reduction in benefits in 2033 it will be because the politicians in Washington decided to cut our benefits.

The government has the money to pay full benefits if the president and Congress will let it. The program will be taking just as much in tax revenue (relative to the size of the economy) in 2033 and later years as it did before. And the amount we pay in benefits relative to the economy also changes little. The only change in 2033 is that the program runs out of the government bonds it had purchased when the baby boomers were all working and the program had a huge surplus.

There was a logic to have Social Security exclusively funded by the payroll tax, but now that the Republicans’ war on workers has made that less feasible, there is no reason for us to say, “Okay, you killed our wages, you might as well take away our Social Security benefits too.” Instead, Congress can just decide to make up the gap in the program from general revenue. This would be an accounting change with no economic significance whatsoever.

 The Privatization Trap: Wasteful and Expensive

Suppose instead, we decide to go the Trump-Bessent route and have private accounts replace Social Security. Presumably, this would first be hitting workers 60 and 70 years out, after they have accumulated enough money in their “Trump Accounts” to replace Social Security.

While there are many reasons this arrangement would be far inferior to the insurance provided by Social Security, it would also be a massive source of waste in the economy. Paying extra money to Wall Street to do something that could be accomplished far more cheaply by the government is the same thing as throwing money in the toilet — although in this case the toilet is the money managers on Wall Street.

We can get some idea of what sort of money we are looking at by looking at current benefits and costs. At present, the average benefit for a retired worker is roughly $2,000 a month, or $24,000 a year. Life expectancy at 65 is around 80, so the average person will collect benefits for 15 years.

In a private account, a person would need roughly $300,000 to pay out $24,000 a year for 15 years. Since people don’t know exactly how long they will live, they would need to buy an annuity which would guarantee them that this $24,000 would be paid out as long as they live. Insurers charge a fee of at least 10 percent for issuing annuities, which means a worker would need to accumulate $333,000 to pay an insurance company for an annuity of $24,000 a year.

On top of this, the annual cost of 401(k) type accounts in the private sector are over 1.0 percent annually. If the average dollar has been in a worker’s account for 20 years (some money will have been in the account for 45 years, some for just a few years), then these fees will amount to more than 20 percent of the final accumulation. In this case they would be $66,000.

Adding the cost of the annuity and the cost of maintaining a Trump Account through a working lifetime, we get that this worker would be paying $99,000 to Wall Street for the retirement income generated by the account.

We can easily calculate the comparison cost for getting Social Security benefits. It comes to 0.4 percent of the benefit paid out, or $96 a year in this case. If we assume the worker collects their benefits for 15 years, the total cost is $1,440.

So there you have it. We can go with Donald Trump and Scott Bessent and give $99,000 to Wall Street or we can keep the Social Security system we’ve had for almost 90 years and pay out $1,440 in administrative fees. That doesn’t seem like a tough choice.

This first ran on Dean Baker’s Beat the Press blog.

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