Could Trump's Stimulus Check Exclude Social Security Beneficiaries?
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Could Trump's Stimulus Check Exclude Social Security Beneficiaries?

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We are witnessing something truly unprecedented when it comes to combatting coronavirus disease 2019 (COVID-19) both within the U.S. and around the globe.

Through Friday, March 20, this lung-focused illness had been confirmed in over 272,000 people worldwide, and directly led to the death of around 11,300 people, according to Johns Hopkins University. The rate of new cases has been growing so aggressively outside of mainland China for more than a month that a number of countries, including the United States, were coerced to take serious mitigating actions to stem the spread of COVID-19.

President Trump standing behind the presidential podium. Image source: Official White House Photo by Joyce N. Boghosian.

Within the U.S., we've witnessed varying degrees of response, ranging from suggested social distancing to the mandated closure of all nonessential businesses throughout California and New York. These actions are being taken to save lives and ensure our healthcare system doesn't become overwhelmed. However, it's going to come at a steep cost.

Halting most economic activity for weeks, or perhaps even longer than a month, is going to do considerable harm to American's pocketbooks, and it certainly threatens to put countless small businesses and highly levered companies out of business. That's what makes a massive fiscal stimulus package all the more necessary from the President Trump and his administration.

But what you might be surprised to learn is that it isn't a guarantee that Social Security's 64 million beneficiaries will receive a Trump stimulus check.

No joke: Social Security beneficiaries aren't guaranteed to receive a stimulus check

As of March 20, discussion surrounding a roughly $1 trillion fiscal stimulus package were still fairly fluid. However, a proposal from the Republican-led Senate was gaining steam. Here are the basic details of what the Trump stimulus might entail, as well as who it would apply to:

  • Individual taxpayers would be eligible to receive a one-time payment of up to $1,200, with couples filing jointly receiving up to $2,400.
  • The Trump stimulus check is based on income, with a phase-out beginning at $75,000 in income for individuals and $150,000 in income for couples filing jointly. For individuals, this one-time payout declines by $5 for every $100 over $75,000. Individuals earning more than $99,000 annually, or couples filing jointly above $198,000, would not receive a stimulus check.
  • Payouts reduce to $600 per individual or $1,200 per couple in cases where there is little or no income-tax liability, but at least $2,500 in qualifying income.

Image source: Getty Images.

The concern for Social Security beneficiaries ties into the language of the proposal. As of now, Social Security payments would act as qualifying income, and therefore allow retired workers the opportunity to receive a Trump stimulus check. But this may not be the case if the proposal's language is changed.

Furthermore, Social Security beneficiaries who receive less than the federal taxable amounts of $25,000 for an individual or $32,000 for a couple may not have filed a federal tax return in 2018 – 2018 being the federal tax year used to determine stimulus eligibility. Beneficiaries who are essentially reliant on Social Security for all of their income and didn't file a tax return may not have any qualifying income, and therefore wouldn't receive a Trump stimulus check. Or to put this in another context, some of the lowest-income Social Security recipients may not receive a dime.

Obviously, there's a lot still a lot to be decided, and it's quite possible the Democrat-controlled House will want tweaks to the Senate's proposal. But as things stand now, it's not a guarantee that every Social Security beneficiary is going to get a Trump stimulus check.

This is the bigger worry for Social Security recipients

As disheartening as it might sound that not every senior may qualify for the stimulus package, there's a far bigger worry looming.

Image source: Getty Images.

As noted, mitigation measures to flatten the curve and minimize the spread of COVID-19 are a necessary evil. Unfortunately they're going to do exceptional harm to the Social Security program. That's because the 12.4% payroll tax on earned income is the primary funding mechanism. In 2018, the payroll tax was responsible for $885 billion of the just over $1 trillion collected by Social Security, with the remaining $118 billion coming from a combination of interest income and the taxation of benefits. If economic activity effectively grinds to a halt, Social Security is going to see a significant drop-off in revenue collection and will almost certainly turn in its largest annual net-cash outflow in history.

In the very near-term, this won't have any impact on existing retired workers or those about to begin taking their payouts. But there's a very real possibility that this economic shock is going to lessen the time frame before Social Security's asset reserves -- i.e., its net-cash surpluses built up since inception -- are completely exhausted. Right now, the Social Security Board of Trustees is calling for the program's asset reserves to be gone by 2035, but it could wind up being much sooner as a result of the coronavirus.

Although Social Security can't go bankrupt, a lack of asset reserves would force the program to cut benefits on retired workers by as much as 23%. Missing out on up to a $1,200 stimulus check would be a bummer, but that pales in comparison to a potential lifetime benefit reduction of 23% if Congress doesn't act soon.

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