Latest news with #SocialSecurityFairnessAct
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First Post
10 hours ago
- Business
- First Post
US recession fears rise as personal income and spending fall in May
Amid the tariffs introduced by US President Donald Trump, fears of a recession loom in America as the US witnessed a decline in personal income and consumer spending in May read more Amid the fears of recession and inflation, the US consumer spending declined for the first time since January. According to the new data released by the US Bureau of Economic Analysis, personal income decreased by $109.6 billion (0.4 per cent at a monthly rate) in May. The Commerce Department report also showed that consumer spending fell 0.1 per cent last month after rising 0.2 per cent in April. The 50 per cent drop-off in motor vehicle sales in May was a significant driver of the overall spending retreat. The vehicle industry saw a sharp decline in May because consumers rushed to dealerships to buy cars in March and April, fearing that President Donald Trump's tariffs would send those costs soaring. STORY CONTINUES BELOW THIS AD However, the Friday report also reflected that the consumers pulled back on spending at restaurants and hotels. It is pertinent to note that Consumer spending powers more than two-thirds of American economic activity. The sharp decline prompted concerns among economists who argue that the steep tariffs on imported goods will erode Americans' resiliency. Consumer economy plunders over fear of Trump Tariffs According to the data released by the US Bureau of Economic Analysis, Personal income fell more than expected for the month, sinking 0.4 per cent. However, the economists argued that the May decline was largely a reflection of Social Security payments returning to more typical levels. In March and April, former public workers received large retroactive payments made under the Social Security Fairness Act due to reduced benefits under the prior legislation. Gregory Daco, chief economist at EY-Parthenon, told CNN that despite the recent months' volatility in those income numbers, the trend is one where income growth 'remains quite subdued." 'Real disposable income (what's left after taxes) is currently trending at a pace of 1.7 per cent year over year,' he said. 'That will bring down consumer spending from the 3 per cent (annual) pace that we were accustomed to through most of 2024 closer to 1.5 per cent over the coming months and perhaps even below 1% in the back half of 2025.' He cautioned that the closer the spending growth gets to 1 per cent, the more vulnerable the US economy becomes. 'You're much more subject to a stalling,' he said. 'You're exposed to price shocks, oil price shocks, tariff shocks, interest rate shocks, stock market shocks, and therefore you're more at risk of experiencing a more significant slowdown or possibly a recession.' STORY CONTINUES BELOW THIS AD However, the figures are still concerning. Major economic forecasts now predict sharply slower growth for the rest of 2025, with real GDP expected to weaken to as low as 1.1 per cent by year-end, compared to 2.5 per cent in late 2024. Economists warn that persistent inflation, higher tariffs, and policy uncertainty are putting additional pressure on household budgets and business confidence. Some analysts caution the US could be facing stagflation — a combination of slow growth and stubborn inflation — rather than a typical recession. The probability of a US recession in 2025 remains significant, with estimates ranging from 25 per cent to 40 per cent depending on the model and scenario. While the latest data do not guarantee an imminent recession, the combination of falling income, weaker spending, and negative leading indicators has heightened risks and could signal more economic trouble ahead.
CBS News
a day ago
- Business
- CBS News
PCE report today shows U.S. inflation ticked higher in May as consumers pared spending
Fed Chair testifies that tariffs could drive up inflation, which is why rates were held steady The personal consumption expenditures price index, or the PCE, inched higher in May, the latest sign that inflation remains stubbornly above the Federal Reserve's 2% annual target. Prices rose 2.3% in May compared with a year ago, up from just 2.1% in April, according to the PCE data. Excluding the volatile food and energy categories, core prices rose 2.7% from a year earlier, up from a rate of 2.5% the previous month. While inflation ticked higher, prices across the U.S. haven't yet shown a major impact from the Trump administration's tariffs. Federal Reserve Chair Jerome Powell cautioned earlier this week that inflation could reignite this summer as the import duties are passed through to consumers. Consumers also pared their spending last month, marking their first reduction since January, while incomes also dropped, the Commerce Department said on Friday. The pullback in spending, which dropped 0.1% last month, comes after Americans opened their wallets earlier in the year to buy goods before the tariffs took effect, economists said. "While the spending numbers fell slightly and came in below expectations, we would not read too much into these numbers as this weakness is probably primarily just payback from the jump in spending earlier this year as consumers tried to buy goods ahead of the tariffs," Greg Wilensky, head of U.S. fixed income and portfolio manager at Janus Henderson, said in an email. Incomes dropped after a one-time adjustment to Social Security benefits had boosted payments in March and April. Social Security payments were raised for some retirees who had worked for state and local governments due to the Social Security Fairness Act. Modest impact from tariffs The inflation figures suggest that President Trump's broad-based tariffs are still having only a modest effect on prices. The cost of some goods, such as toys and sporting goods, have risen, but those increases have been partly offset by falling prices for new cars, airline fares and apartment rentals, among other items. On a monthly basis, in fact, inflation was mostly tame. Prices rose just 0.1% in May from April, according to the Commerce Department, the same as the previous month. Core prices climbed 0.2% in May, more than economists expected and above last month's 0.1%. Economists point to several reasons why Trump's tariffs have yet to accelerate the pace of inflation, as many analysts had expected. Like American consumers, companies imported billions of dollars of goods in the spring before the duties kicked in, and many items currently on store shelves were imported without paying higher levies. Some businesses are also absorbing higher import costs, cushioning consumers from price hikes. contributed to this report.
Yahoo
2 days ago
- Business
- Yahoo
Social Security Retirees Just Got Bad News
Two new reports spend a good deal of time examining the solvency of the Social Security program. While Social Security's finances have been on the fritz for quite some time, the situation appears to be worsening. The $23,760 Social Security bonus most retirees completely overlook › Although Congress has yet to act, it is well known that Social Security's rainy-day funds will soon run dry, and revenue from Social Security's payroll taxes will not be enough to cover projected future benefits. Each year, the board of trustees of the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and the Federal Disability Insurance (DI) Trust Fund releases annual reports, updating the country on the financial situation of the trust funds and the Social Security program as a whole. While the message over the years has been fairly consistent, the 2025 annual report just gave Social Security retirees bad news. Social Security has begun to encounter financial challenges due to shifting demographics. More baby boomers are reaching retirement, and there are fewer young workers than there once were to pay taxes into the system. According to the Population Reference Bureau (PRB), the population of Americans age 65 and older is expected to jump from 58 million in 2022 to 82 million in 2050. Their proportion of the population is projected to increase by 6% to 23%. When revenue from Social Security payroll taxes can no longer cover scheduled benefits, the Social Security Administration draws from the OASI trust fund, which it has been doing for a while now. Once that fund is tapped, it can get approval from Congress to draw from the much smaller DI fund. Last year's trustees report indicated that when accounting for both trust funds, Social Security's reserves will be depleted by 2035, at which point revenue generated from Social Security taxes would be enough to cover only 83% of scheduled benefits at that time. This year's report suggests an expedited timeline. The trust funds are now expected to be depleted by 2034, at which point there will be enough tax revenue to cover only 77% of scheduled benefits, significantly lower than last year. It's common for the annual reports to show different projections, but this year was heavily affected by a new Social Security law that will either increase benefits or provide benefits to retirees who may not have previously received them. The Social Security Fairness Act eliminated two provisions: the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). Both provisions reduced or eliminated benefits for some federal and state workers who received pensions from jobs that didn't necessarily pay Social Security taxes. The group includes teachers, firefighters, and police officers in many states, as well as federal workers under the Civil Service Retirement System and workers under a foreign social security system. Additionally, the annual report noted changes in assumptions, including a longer recovery in fertility rates off of current low levels and slightly lower long-term wages as a percentage of gross domestic product, resulting in lower payroll taxes. Given the number of voters who claim Social Security, I think most Americans expect Congress to eventually shore up the program, even if they leave it to the very last minute. A sizable portion of Social Security retirees relies on benefits as the primary source of income, so any potential cuts could lead to a crisis among this population if they no longer have the funds needed to cover critical expenses, such as housing, healthcare, and food. Like most other financial issues, the main ways to solve Social Security are to cut benefits or raise taxes. Social Security payroll taxes are currently 12.4%, evenly divided among employers and employees. Self-employed employees must cover the total amount on their own. Republicans typically favor curbs to the program, such as raising the age at which retirees can claim full benefits, while Democrats seem largely in favor of tax hikes. Taxes are only levied on a maximum of $176,100 of a worker's income (in 2025), so Congress could raise this cap to cover the shortfall or increase taxes on the wealthiest Americans. Either way, difficult decisions will need to be made over the next eight or nine years. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Social Security Retirees Just Got Bad News was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Los Angeles Times
2 days ago
- Business
- Los Angeles Times
Social Security is headed for a cliff. When will voters care?
Considering recent news, you may have missed that the 2025 trustees reports for Social Security and Medicare are out. Once again, they confirm what we've known for decades: Both programs are barreling straight toward insolvency. The Social Security retirement trust fund and Medicare Hospital Insurance trust fund are each on pace to run dry by 2033. When that happens, seniors will face an automatic 23% cut in their Social Security benefits. Medicare will reduce payments to hospitals by 11%. These cuts are not theoretical. They're baked into the law. If nothing changes, they will be made. I have nothing against cuts of this size. In fact, if it were up to me, I would cut deeper. Medicare is a terrible source of distortions for our convoluted healthcare market and needs to be reined in. Social Security was created back when being too old to work meant being poor. That's no longer the case for as many people. Thanks to decades of compound investment growth, widespread homeownership and rising asset values, seniors are no longer the systematically vulnerable group they once were. The top income quintile includes a growing number of retirees who draw substantial incomes from pensions and investment portfolios with Social Security benefits layered on top. These programs have become a transfer of wealth from the relatively poor to the relatively wealthy and old. Of course, America still has some poor seniors, so cutting across the board is bad. This is why the cuts should be targeted, not the automatic effects in 2033. And Congress should get started now. The size of the problem is staggering. Social Security's shortfall now equals 3.82% of taxable payroll or roughly 22% of scheduled benefit obligations. Avoiding insolvency eight years from now would require an immediate 27% benefit cut, according to former Social Security and Medicare trustee Charles Blahous. Alternatively, legislators could raise the payroll tax from 12.4% to 16.05%. That's a 29.4% increase. Or they could restructure Social Security so that only people who need the money would receive payments. But because facing this problem in an honest way is politically toxic, legislators are ignoring it. Blame does not rest solely with Congress. The American public has made it abundantly clear that they don't want reforms. They don't want benefit cuts or tax increases, and they certainly don't want higher retirement ages. So politicians pretend everything is fine. Congress does deserve fresh criticism for making things worse. Last year, legislators passed the misnamed 'Social Security Fairness Act,' giving windfall benefits to government workers who didn't pay into the system — which enlarges the shortfall. This year, the House proposed expanded tax breaks for seniors in the 'One Big Beautiful Bill Act,' which would further worsen the problem. The cost of political giveaways is steep. Social Security's 75-year unfunded obligation has now reached $28 trillion, up from $25 trillion just a year ago. Medicare is no better. Its costs are projected to rise from 3.8% of gross domestic product today to 6.7% by the end of the century (8.8% under more realistic assumptions). Most of the additional spending will be financed through general revenue, meaning more borrowing and more pressure on the federal budget. As Romina Boccia of the Cato Institute has documented, other countries have taken meaningful steps to address similar challenges. Sweden and Germany implemented automatic stabilizers that slow benefit growth or raise taxes when their systems become unsustainable. New Zealand and Canada have moved toward more modest, poverty-focused pension systems that offer basic support without bankrupting the state. A few weeks ago, Denmark increased the retirement age to 70. These are serious reforms. The U.S. has done nothing. Options exist. Policymakers could gradually raise the retirement age to reflect modern, healthier, longer lives. They could cap benefits at $2,050 monthly, preserving income for the bottom 50% of beneficiaries while progressively reducing benefits for the top half. They could reform the tax treatment of retirement income to encourage private savings, as Canada has done with its tax-free savings accounts. Any combination of these reforms would help. But that would require admitting that the current path is unsustainable. It would require telling voters the truth. It would require courage. So far, these admirable traits have been sorely lacking in our politicians. The programs' trustees have made the stakes clear: The only alternatives to reform will be drastic benefit cuts or massive tax hikes. Waiting until the trust funds are empty will leave no room for gradual, targeted solutions. It will force crisis-mode slashing that will hurt the most vulnerable. The ultimate blame is with voters who continue to reward politicians for promising the impossible. A functioning democracy cannot survive if the electorate insists on voting benefits for themselves to the point of insolvency. At some point, reality asserts itself. That moment is rapidly approaching. Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with Creators Syndicate.
CNET
2 days ago
- Business
- CNET
Social Security's Shrinking Reserves Could Mean Lower Benefit Payments: What To Know
Social Security reserves are drying up faster than expected. Here's what you should know. Getty Image/ Zooey Liao/ CNET Millions of Americans rely on Social Security as supplementary income, and for many, it's their lifeline. According to the latest annual report from the Social Security Trustees, the program is in worse shape than expected just months ago, with trust fund reserves now projected to run out a year earlier -- in 2034. To be clear, monthly Social Security payments will still go out, but recipients could see nearly a 25% cut in benefits. That's troubling, especially for those who rely on it as their main income source. Turning things around would require swift action from lawmakers. The overarching issue for the Social Security program is that it's paying out more money than it's receiving from the current workforce, a situation known as an actuarial deficit. The annual report details some of the reasons that the trustees project the trust funds to run out sooner than expected, including lower birthrates and newly implemented initiatives like the Social Security Fairness Act. The annual report is an important health check on the current state of the Social Security program, but it also lays the groundwork for policymakers to make funding changes -- reducing the potential harm to those who rely on monthly payments, many of whom are already struggling financially. Below, we'll go over some of the details found in the report, including the reasoning for the updated projections and what it means for you if Social Security can't continue to pay full benefits to recipients -- or when the trust funds become "insolvent." For more, here's what you should know about paper Social Security checks going away. How is Social Security funded anyway? Social Security is funded through a dedicated payroll tax, meaning that employers and employees each pay 6.2% of wages up to the taxable maximum for the given year. For 2025, the maximum is $176,100. If you're self-employed, your tax rate is doubled to 12.4%. The dedicated tax dollars go to the Social Security trust funds -- comprising the Old-Age and Survivors Insurance and the Federal Disability trust funds -- which are managed by the US Treasury and used to pay retirement, disability and survivor benefits. Any surplus is invested in special government securities. The main issue is with the OASI trust fund, which is expected to be depleted in 2033 -- at which point it will only be able to pay about 77% of scheduled benefits. The DI trust fund reserves aren't expected to be depleted within the 75-year period that ends in 2099. What's causing the Social Security fund to run out of money? Social Security is running out of funds for a number of reasons. However, a major factor is the growing number of Baby Boomers retiring compared to the size of the current workforce, which can't pay in enough to keep the Social Security fund solvent. In addition to the growing number of retirement applications, the Social Security Fairness Act, which went into effect in January of this year, has further strained the program. The act repeals two provisions that previously prevented certain types of public workers from receiving benefits. With those provisions out of the way, Social Security is responsible for ongoing payments and billions of dollars in back payments for qualifying individuals. Another factor is the growing actuarial deficit, which has widened since the 2024 annual report that had projected insolvency in 2035. The actuarial deficit is the difference between the Social Security's payment obligations versus the flow of money into the Social Security trust fund. Last year, the deficit was 3.50%, where it has since grown to 3.82%. These deficit projections are based on government estimates extending through the end of the century. The latest annual report also took into account lower birthrates for a longer period of time compared to last year's report and how much labor contributes to the GDP. What would it take to make Social Security solvent? Closing the gap and making the Social Security program solvent would require a cut to benefits, a permanent increase to the payroll tax or a combination of the two. The annual trustees report lays out potential paths to make Social Security solvent until 2099. One path would be to introduce an immediate, permanent payroll tax hike of 3.65% to be shared between employers and employees. Another path would be to immediately and permanently cut all scheduled and future Social Security benefits by 22.4%. What happens after the Social Security fund becomes insolvent? Image illustrating how much in benefits Social Security will be able to pay after the fund becomes insolvent. Social Security Administration If nothing is put in place to fill the gap for Social Security funds, 2034 will be a tough year for many. It's important to remember that Social Security payments won't suddenly stop -- but they will be reduced. After the Social Security trust funds are depleted, existing payroll deductions will still be able to pay up to 81% of benefits. For more, be sure to check out the Social Security and SSDI cheat sheet.
