Could This Controversial Plan Proposed by President Trump Pave the Way for the Biggest Social Security Change Ever?

When he was running for president, Donald Trump declared that Social Security didn't need to be touched. Last week, President Trump confirmed this premise, telling Fox News' Sean Hannity, "Social Security won't be touched."

However, there's one change the president wants to make that might have huge implications for Social Security if some Republicans get their way. Could a controversial plan by President Trump pave the way for the biggest Social Security change ever?

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

Trump's controversial plan

On his first day back in the White House, Trump signed an executive order directing the Treasury secretary and commerce secretary to come up with a plan to create a sovereign wealth fund. And he gave them 90 days to finish the task.

What is a sovereign wealth fund? It's a fund owned by a government that invests in assets, including stocks, bonds, and real estate. These funds can be used to save for the future, help supplement government budgets, and/or make up part of a country's core economic policy.

Several countries have had sovereign wealth funds for years. For example, Singapore has two sovereign wealth funds that help pay for education, healthcare, infrastructure, and more. Norway's sovereign wealth fund enables the country to stabilize the economy when oil prices fluctuate. Saudi Arabia uses its sovereign wealth fund to help finance strategic commercial projects.

The president's executive order immediately attracted supporters and detractors -- from both sides of the political aisle. Dominic Pino, with the conservative publication National Review, wrote, "The potential for cronyism with a sovereign wealth fund is dizzying." Romina Boccia with the libertarian Cato Institute argued that a sovereign wealth fund "would invite political interference in capital markets, opening the door to cronyism, favoritism and inefficiency."

How it could impact Social Security

What does the creation of a sovereign wealth fund have to do with Social Security? Perhaps nothing. President Trump's executive order mentioned using returns from investments "to promote fiscal sustainability, lessen the burden of taxes on American families and small businesses, establish long-term economic security, and promote U.S. economic and strategic leadership internationally."

However, Mark Warshawsky, a senior fellow with the conservative think tank American Enterprise Institute, suggested that Social Security's trust funds were "a possible source for a large and quick infusion of funds" for a sovereign wealth fund. While Warshawsky explained how this funding might work, he expressed serious reservations about the creation of a sovereign wealth fund.

Sen. Bill Cassidy, a Republican representing Louisiana, fully supports Trump's idea. Following the president's executive order, Cassidy quickly issued a press release stating, "Let's use it to save Social Security!" He has argued in the past for establishing a fund separate from Social Security's trust funds to "build a bridge to solvency and secure it for decades to come."

Trump could be persuaded by such an argument. During the presidential campaign, he put forward the idea of using wealth from the country's oil and gas reserves. Several countries use revenue generated from domestic oil and gas production in their sovereign wealth funds.

Many hurdles to jump

So, is the biggest change ever to Social Security on the way? Maybe, but there are many hurdles to jump.

A sovereign wealth fund would require congressional approval. The proposal would likely attract significant opposition, especially given concerns about where the money would come from and the possibility that it could be mismanaged. Even if a sovereign wealth fund is established, it might not be used to bolster Social Security.

However, something must be done to prevent Social Security from running out of money. We could hear much discussion in the coming months about whether the creation of a sovereign wealth fund is the best answer to the popular federal program's financial problems.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 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. Simply click here to discover how to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.