During his third campaign for the White House, President Donald Trump promised he would “fight for and protect Social Security.” The government program that tens of millions of American seniors rely on to make ends meet is facing a massive shortfall, as it currently pays out more in benefits than it collects in taxes and investment income. Without major reform, Social Security will deplete its trust fund, and beneficiaries could face a severe drop in their monthly payments within just a few years.
Despite his campaign promises, Trump’s policies have made the challenges faced by Social Security even worse. Here’s exactly how the president has exacerbated the shortfall and what Congress can do to correct it.
Image source: Official White House Photo by Molly Riley.
How did we get here?
This isn’t the first time the Social Security trust fund was on a course to deplete its reserves. The program came within days of forced benefit cuts in the 1980s before Congress stepped in to amend the Social Security Act. At the time, Social Security actuaries estimated the changes would ensure the program had the financial footing to pay out benefits uninterrupted for at least 75 years.
Unfortunately, the actuaries’ crystal ball was a bit foggy. The program is on track to deplete its trust fund within 50 years of the 1983 amendment. What they didn’t foresee was the growing income inequality experienced over the last 30-plus years.
When Congress passed the 1983 Social Security amendment, 90% of all wages paid were subject to Social Security tax. Workers don’t pay Social Security taxes on earnings above a certain amount in a given year, and the amount is adjusted for wage inflation every fall. In 1983, workers only paid Social Security tax on their first $35,700 in earnings. This year’s taxable earnings cap is $184,500.
But as high earners saw their wages grow faster than those of low earners, a smaller percentage of total wages fell under the earnings cap. And that’s not a recent phenomenon. Current Chief Actuary Karen Glenn told the Senate in March that income inequality grew quickly in the ’80s and ’90s, and only 82.5% of wages fell under the taxable earnings cap by 2000. That means Social Security has participated in less of the overall economic growth of the United States for the last three decades.
As a result, the tax revenue collected over those years was less than actuaries expected. Now that those workers are retiring, the benefits being paid out are rapidly depleting the reserves.
How Trump’s policies impact Social Security’s revenue
If Congress is going to fix Social Security, it needs to implement policies that increase program revenue or reduce benefits. Trump (and almost every other politician) strongly opposes benefit cuts. But there are opportunities to raise revenue by increasing taxes.
Trump’s “big, beautiful bill” does exactly the opposite, though. It offers a temporary tax break for seniors that will have a notable impact on how quickly Social Security depletes the trust fund. The $6,000 senior tax deduction included in the new tax code disproportionately favors upper-middle-class retirees who pay taxes on their Social Security benefits. Note, 100% of income taxes on Social Security benefits goes back to the Social Security and Medicare trust funds.
Glenn estimates the tax change will cost Social Security $168.6 billion in lost revenue. As a result, the program will deplete the trust fund one calendar quarter earlier than previously expected, before the end of 2032.
A path to protect Social Security
Glenn explains that to ensure Social Security remains solvent, Congress needs to implement changes that increase its revenue by one-third, cut benefits by one-fourth, or some combination of the two.
One path toward that goal is to raise taxes. As the 1983 amendment was implemented with the intent to tax 90% of wages, Congress could implement strategies to restore taxation to that level and ensure it remains there over time. Additionally, it could implement taxes on wealthier retirees to offset the earlier shortfall in tax revenue from high earners since the 1990s.
Even those moves may not be enough, though. Congress also needs to consider raising the full retirement age, adjusting the cost-of-living adjustment (COLA) calculation, and allowing adjustments to early retirement reductions (for claiming before full retirement age) and delayed retirement credits (for claiming later).
There are many proposals on the table. The sooner Congress acts, the less severe the changes will have to be. But pushing through more proposals like Trump’s tax act, which reduces income for Social Security, will only make matters worse.
