Last Wednesday (June 18), the Social Security Trustees released their annual report on the financial status of the program. The 2025 report projects that Social Security will become insolvent in 2033. Such insolvency means that the Social Security trust funds will not have enough money to pay promised benefits in full and on time. If this insolvency is not addressed, in 2033, retirees will face an automatic 23% benefit cut under the law. The problem will continue to get worse as more and more baby boomers like me continue to retire at a rate such that Social Security payouts are increasing a lot faster than contributions. It is clear that Social Security is on an unsustainable path, but both political parties have been reluctant to act to save it. It appears that demagoguery and populism have won out over common sense. In the 2024 Presidential Campaign, both parties pledged they would not touch Social Security and Medicare for fear that the other party would prey on the lack of understanding of the American public to win votes. We are quickly running out of time to save Social Security to continue as a safety net for many older Americans. The reform of Social Security is an ideal platform for a bipartisan effort to do what is best for the country.
The day after the annual report was released, the editorial board of the Wall Street Journal published an op-ed piece entitled, “The Social Security Iceberg Gets Closer”, indicating much of the information I provided in the opening paragraph of this column. In its penultimate paragraph, the op-ed compares the Social Security crisis to the Titanic, such that “they’ve spotted the iceberg, yet both parties have promised not to touch the tiller.” The column indicates that the “later Congress waits to do something, the uglier the ensuing crash can be…Changes to these programs for younger people, not near retirement, don’t have to affect today’s seniors. What will hurt them is doing nothing.” Fortunately, there are a number of practical, smart, and relatively easy recommendations for Social Security reform. The remainder of the column looks at some of these ideas.
The most comprehensive look at Social Security reform was done by the Brookings Institute (BI) earlier this year. The BI is a well-known, non-profit public policy organization located in Washington, D.C. While its political leanings have been described in various ways, I have found their work to be best characterized as centrist and non-partisan. Here are some of the key elements of the reforms recommended by the BI:
- Increase the Taxable Maximum Ceiling: Each year, there is a maximum of your salary that is subject to Social Security Tax. For 2025, that number is $176,100. That means for all but the top 10% of earners, their entire salary is subject to Social Security Tax. However, given the growing number of high earners, only 80% of total wages are subject to the tax. BI recommends increasing the maximum such that 90% of total wages are subject to the tax, the same percentage as it was in 1983. The goal would be to increase the rate such that reaches the 90% level by 2039. Such an increase would reduce the Social Security deficit by $730 billion in the next ten years.
- Increase Payroll Taxes: Increasing the total Social Security Tax from 12.4% to 12.6% (evenly split between employer and employee) would reduce the Social Security deficit by an additional $200 billion over the next ten years.
- Change Rules for Pass-Through Payroll Tax: This would close the loophole that allows many self-employed individuals to avoid paying Social Security Tax. This would reduce the Social Security deficit by an additional $550 billion over the next ten years.
- Additional Elements of the Plan: Two important requirements of the BI plan are that it results in 75 years of Social Security solvency and no benefit reductions for current beneficiaries. There are other elements of the plan that include future benefit enhancements and other benefit reductions. For more complete information on the BI plan, you can visit the following link: https://www.brookings.edu/articles/fixing-social-security-blueprint-for-a-bipartisan-solution/.
Some, particularly those who are more conservative, might be less enthralled with this plan that appears to be focused on increasing Social Security taxes. However, this plan does keep the program intact for all, but most importantly, for those who most need Social Security in old age, for whom the program was primarily intended.
The likelihood of the BI-type proposal being adopted as proposed is highly unlikely. Fortunately, there are some other bipartisan proposals that are less tax-dependent. Senator Bill Cassidy (R-La.) has been a leader on this front, with a bipartisan group of Senators proposing what they call the “Big Idea”, which addresses how Social Security is financed. They propose a $1.5 trillion investment fund that would grow for 75 years with all returns reinvested. Cassidy and his fellow Senators believe such a fund will cover 70% of the Social Security deficit, and the other 30% can be addressed with modest, phased-in changes to Social Security without raising taxes and cutting benefits.
Some combination of the BI Social Security taxes and Senator Cassidy’s “Big Idea” could certainly be implemented and save Social Security. Additional proposals have been made concerning reducing benefits for high earners, reducing benefits by changing yearly indexing, and increasing the Social Security eligibility age. All of these can be part of a solution, but something needs to be done fast. It is time for President Trump and Congress to stop the demagoguery and populism and steer us away from the Social Security iceberg.
