American have been hearing about the demise of Social Security for decades. The number of seniors receiving benefits has been growing faster than the number of working-age adults whose taxes cover the checks. Yet politicians have let the problem fester for so long that the public can be forgiven for thinking that the crisis will never come.
But it’s coming. For the past 16 years, Social Security has paid out more than it has taken in. This has required tapping into his trust fund, built up over the decades when the Baby Boomers were at the peak of their earning years. The fund is on track to run out by 2032. When it runs out, benefits will have to be cut by an expected 22 percent across the board to match the tax revenue it funds.
Soon, politicians will no longer be able to beat this trend in the street. The senators elected this November will be in office in 2032. So will the next president. They will have no choice but to come up with a way to save the federal government’s largest and most popular program, lest it be blamed for its partial collapse. The solutions available are politically difficult but not too surprising. They involve raising taxes, increasing the national debt, and reducing profits, or some combination of the three. Even if our leaders find a way to fix Social Security, however, they cannot address the larger underlying budget problem: A program designed to reduce poverty has turned into a wealth transfer to the wealthiest members of our society.
In 1935, during the When the Social Security Act was signed into law, the average person entering the workforce could expect to die at age 65. Those who lived past that age tended to be too disabled to work, leaving them dependent on their children, if not a local charity or poorhouse. Social Security was created to fix this problem by taxing workers and their employers, and paying benefits to the elderly based roughly on the amount they earned during their careers. When the checks first started, in 1940, the average recipient received $22.60 a month, or about $550 in today’s dollars. The payment did not require much sacrifice—just 1 percent of the tax on the first $3,000 of a person’s income, matched by their employer—because there were many times more workers than beneficiaries.
The plan changed over time. Congress voted repeatedly to expand benefits faster than inflation. But the big change was pointless. Because benefits match what the retiree earned during his working years, America’s wage increases made the program grow. So was the increase in life expectancy. The average age of 65 now has about 20 years left to live, up from 13 years in 1940. Meanwhile, the pool of workers paying into the system has not kept pace. Fertility rates are down, and fewer children means fewer workers in the future. The number of workers per beneficiary has fallen by 24 percent since 1990, as more and more are asked of a smaller portion of the population.
The sad truth is that Social Security was never guaranteed to work forever. The tax system is simple: Each worker, along with their employer, pays 6 percent of their income, up to $184,500. The way of profit is not. The Social Security Administration takes the 35 highest-earning years of work and calculates your average monthly earnings from those years, adjusted upward for the next average wage growth. A development formula determines how much of that you’ll get paid each month: Assuming you choose to start receiving benefits at age 67, you’ll get 90 percent of the first $1,300, 32 percent of the next $6,500, and 15 percent of the rest.
The benefit side of the equation and the tax side of the equation do not add up to the same number. Thanks to wage adjustments and longer life expectancies, many people receive more money than they paid for. Overall, income has lagged behind benefits. “There’s no reason those formulas could be consistent,” Andrew Biggs, a former deputy commissioner of the Social Security Administration, told me. The only reason they ever have is that America ever had enough workers to support its retirement population.
Preventing program bankruptcy is a calculation problem that involves adjusting the tax side, the benefit side, or both, until they match. This is not difficult conceptually. Steven Kull, a political psychologist at the University of Maryland, conducts a poll every once in a while in which he shows participants possible reforms, telling them how much each change closes the funding gap. “The biggest theme is that people solve the problem,” Kull told me, with “many taking steps that eliminate the deficit or all the deficits.” Respondents tend to be confused as to why their elected officials have not resolved the issue. “The usual answer is, That wasn’t too difficult. What’s all the fuss about?“
The problem is not that the calculations are difficult, but that every possible step comes with limitations. “Social Security reform is ultimately about breaking promises,” Biggs said. Maybe you’ll raise taxes above the level people are used to, or cut benefits for people who used to depend on them. Historically, Democrats have favored the former approach, proposing to raise taxes on the wealthy to pay for program shortfalls while leaving benefits alone. Republicans have been seeking to scale back the program—albeit usually in a progressive way. After President George W. Bush’s push for privatization failed, for example, he proposed a gradual overhaul of the program by making the benefit formula more generous for all but the bottom 30 percent of recipients.
The Democratic approach has always been more popular politically. Donald Trump was the first Republican to admit that fact. In 2015, on his way to the Republican nomination, he promised not to touch Social Security, breaking GOP norms and pleasing the base. Since then, Republican debate about saving the program has had a noticeably muted tone. A March 2024 memo from the Republican Study Committee—a conference that includes a majority of Republicans—recommended raising the retirement age and “moving gradually toward adequate benefits.” Neither Trump nor House Speaker Mike Johnson commented on the proposal. The 2025 Project, produced by the Heritage Foundation, was more sensible. The 900-page document contained advice for the incoming administration on how to effectively manage the declining sage grouse population, but contained no guidance on Social Security.
Democratic plans are still focused on raising taxes with occasional or even increasing benefits. But now they tend to include an element designed to please the party’s middle-class base: the “nut hole.” Most of the current Democratic plans eliminate the payroll tax, but usually only on incomes above $400,000, meaning that dollars earned between $185,000 and $400,000 would not be taxed, and everyone making less than $185,000 would pay a higher gross income tax rate.
Representative John Larson, Democrat of Connecticut, has introduced many Social Security reform initiatives during his 14 terms in Congress. “I personally don’t think there should be a donut hole,” he told me. But, he explained, “during the presidential campaign, Biden said that we should raise more than $400,000.” Larson came to understand why. “Every town hall I go to, I say, ‘Shave your arm if you make more than $400,000,’ and I still haven’t raised my hand.” Because the Democrats have become the party of the well-off, they have more voters who make more than $185,000 but less than $400,000.
The donut hole is one weakness, but every plan has its limitations. Last month, Sen. Elizabeth Warren, a Democrat, and Sen. Bernie Moreno, a Republican, he announced a proposal to completely eliminate the payroll tax. Their idea gets points for bilateral cooperation, but it would close only two-thirds of the deficit, at most, if implemented. Within three years, profits will again exceed revenues.
Few programs allow math to work with large enough tax increases. Recommendations and Larson and Senators Bernie Sanders and Sheldon Whitehouse it would eliminate payroll taxes (including the donut hole) and increase taxes on investment income. This is a big tax increase: A wealthy self-employed couple earning $800,000—think married doctors in private practice—would face a lower federal tax rate of more than 50 percent.
Perhaps the biggest problem with these plans isn’t the new taxes—it’s what the new taxes pay for. Conceived as an anti-poverty program, Social Security today pays most of its benefits not to the poor but to the middle class and wealthy. The bottom 20 percent of elderly Americans receive only 7 percent of all benefits. The economics of aging have changed dramatically since the 1930s. Asset prices—homes and savings—have risen. As a result of these trends, seniors are now America’s wealthiest age group, living without children in homes that on average have more rooms than everyone else’s. Most of them are no longer financially dependent on their children; if anything, their descendants are more likely to ask them for help.
If the public wants a trillion tax increase for the well-off, there are better ways to spend that money. The federal government already spends about six times as much on every adult as it does on every child, even though children and their parents more than twice as likely to be poor. Eliminating the payroll tax would not close the Social Security deficit, but it would provide enough money to pay a $4,500 child benefit for every family in the country each year. Reforming Social Security by cutting benefits for the rich and raising them for the poor would make more financial sense and return the program to its roots. President Franklin D. Roosevelt created Social Security for the elderly not because they were uniquely deserving but because, as he put it in his signing speech, they were too “poverty”. But that scenario—improving Social Security and targeting future generosity to young people—doesn’t seem very likely. Social Security’s popularity is universal, and if well-off people see their benefits cut, the program could lose much of its appeal. When I reported this story, many academics recited to me the old political saying, “Poor programs make poor programs.”
Indeed, most voters, when faced with a choice, prefer a tax increase to benefit from a reduction. A opinion poll last year by the National Social Insurance College, a network of social security researchers, showed that the three most popular reform options were slightly different ways to eliminate the payroll tax. The next most popular was the increase in profits. Even raising the payroll tax rate per capita by one percent listed above would cut benefits only for the wealthy. “Many bipartisans say they would be willing to get more involved,” Rebecca Vallas, head of NASI, told me, “if that’s what it takes to prevent benefit cuts.”
A social safety net that heavily favors the old and rich over the poor and young is probably not what most Americans would have designed if they were starting from scratch, but it is what we have. The most likely result of whatever Congress comes up with in the next six years is the same force, only more.
