Key Points and Summary – Social Security trust funds are on track to become insolvent by 2034, at which point they will only be able to pay 81% of scheduled benefits.
-A report from the Tax Policy Center suggests that the recently passed “One Big Beautiful Bill Act” has accelerated this timeline by making 2017 tax cuts permanent, thereby reducing the tax revenue that funds the program.
-With the crisis looming, experts are debating controversial fixes, including raising the retirement age to 69, increasing payroll taxes, and taxing financial returns like capital gains to bridge the funding gap.
Social Security Alert: Why Trust Funds Could Run Dry by 2034 and Pay Only 81% of Benefits
It’s a looming crisis that almost nobody in politics is talking about: The main Social Security trust funds will lose the ability to pay out full benefits in 2034, at which point they will only be able to pay out 81 percent of benefits. That’s according to the Social Security Board of Trustees’ annual announcement last summer.
Now, it’s 2026. Social Security is a very popular program that millions of Americans depend on.
In August, a couple of months after the Trustees’ report, the Tax Policy Center put out a report, citing the work of the Social Security Actuary, predicting that the passage of the One Big Beautiful Bill Act would move up the insolvency date.
“Among many other provisions, this law makes permanent the lower ordinary income tax rates and adjusted tax brackets originally enacted under the 2017 Tax Cuts and Jobs Act (TCJA) and temporarily changes certain standard and itemized deduction amounts,” Karen P. Glenn, the actuary, wrote in a letter to Sen. Ron Wyden (D-OR) last summer. “Because the revenue from income taxation of Social Security benefits is directed to the Social Security and Medicare trust funds, implementation of the OBBBA will have material effects on the financial status of the Social Security trust funds.”
Per the Tax Policy Foundation, the timing of such a looming insolvency would kick in right in the midst of the 2032 presidential campaign, which is the presidential election after the next one.
The report also said that despite claims from the White House, the One Big Beautiful Bill Act did not repeal income taxes on Social Security benefits.
“The budget law reduces trust fund income because it reduces taxable income, pushes some people into lower tax brackets, and lowers marginal tax rates. Several provisions lower the tax rate on benefits,” the Tax Policy Foundation said in its report.
Break The Promise?
So, what should be done to deal with this?
A recent op-ed from Bloomberg News’ editorial board in early December made a radical suggestion: That Washington must “break its promise” to protect Social Security.
“If there’s one thing Democrats and Republicans have agreed on in recent years, it’s to ignore the rapidly deteriorating finances of Social Security and keep its unsustainable benefits intact. The longer they dither, the worse the problem will get,” the Bloomberg editorial said. “Tweaks that phased in gently while protecting current beneficiaries could’ve balanced the books by now if they’d been done many years ago. Starting from here, they won’t suffice to avoid the programs’ imminent insolvency.”
So what are the ideas for fixes?
“What’s needed is a combination of short-term action to stave off insolvency and technical fixes to bolster the system’s finances over the long haul. The most obvious longer-term reform would be to gradually raise the full retirement age (from 67 to 69, say) and then link it to changes in life expectancy. This would close about a third of the shortfall over 75 years,” the editorial said.
The other suggestion is a change in how prices are measured, with a switch to the “chained CPI.”
“Since the 2017 Tax Cuts and Jobs Act, it’s been used to index tax brackets. Over time it tends to rise more slowly than the normal CPI. Using it for Social Security would cut the long-term funding gap by another fifth,” the Bloomberg editorial said. “Both those changes would make sense even if the system weren’t about to go bust and would be fiscally helpful over the long haul. But avoiding the imminent crunch will require changes to spending or revenue that work much faster.”
A Faster Fix?
But there’s another, bigger change that could shore up Social Security’s finances.
“The simplest such reform would be to increase the payroll tax (currently 12.4%, split equally between workers and employers). An increase of 3 to 4 percentage points would delay insolvency for decades and go far toward eliminating the long-term shortfall. But a much higher payroll tax would hit those in the lowest incomes hardest — and would be especially challenging politically,” Bloomberg said, adding that there could be tweaks to such a proposal, from increasing the limit on earnings that can be taxed to means-testing for higher earners, or applying the payroll tax to “employer-provided health insurance as well as wages.”
“Blending milder variants of all of the above would make each change less disruptive and, with luck, more feasible. Combined with a higher retirement age and chained CPI, they’d put the system’s finances on much safer footing,” Bloomberg wrote. “One way or another, though, the promise to leave Social Security untouched will have to be broken. The fix is daunting precisely because it’s been delayed so long. Keep pretending there’s no problem and solving it only gets harder. Before much longer, Washington will be dealing with another crisis.”
A Political Proposal
Last November, Washington Monthly floated a proposal that Democrats, while out of power, should pursue.
“Fortunately, there is a better way. The fiscal outlook for Social Security may be precarious, but it also presents a huge opportunity. It’s possible to save Social Security without raising taxes on the working class, while also providing the system with the revenues it needs in ways that will make Americans healthier and more productive,” the Washington Monthly story says. “Better yet, policy changes are available that would significantly improve benefits for middle- and low-income Americans of all generations without compromising the trust fund’s long-term solvency. Whichever party takes advantage of these opportunities first is likely to enjoy enduring political rewards.”
The proposal is to “raise the cap on the amount of an individual’s wage income that can be taxed for Social Security,” and also to “broaden Social Security’s revenue base to include financial returns,” including requiring wealthier earners to pay Social Security taxes on “interest, dividends, royalties, capital gains, and rental income.” And finally, “Social Security could be made more progressive by modifying benefit formulas so that they offer higher returns to low- and middle-income workers.”
About the Author: Stephen Silver
Stephen Silver is an award-winning journalist, essayist, and film critic, and contributor to the Philadelphia Inquirer, the Jewish Telegraphic Agency, Broad Street Review, and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. For over a decade, Stephen has authored thousands of articles that focus on politics, national security, technology, and the economy. Follow him on X (formerly Twitter) at @StephenSilver, and subscribe to his Substack newsletter.
