For over 40 years, Congress has known that the Social Security Trust Fund would eventually run out of money, causing an immediate payment cut. Every year, the Social Security trustees issue a report estimating when that bankruptcy date will come and call on Congress to reform the program to make it sustainable. And every year, Congress ignores the trustees and does nothing, except last year, when it managed to make it worse.
When President Franklin D. Roosevelt signed the Social Security Act in 1935, many wage earners were exempted from the payroll tax used to fund the program, including most state and local workers who were already covered by government pensions. State and local workers first became eligible for the program in 1950, and now almost all pay into it.
But for many years, they did not pay into the program, and as a result, their Social Security benefits were reduced for those years. In his final year in office, former President Joe Biden signed the Social Security Fairness Act, which boosted Social Security payments for these workers, all of whom are already receiving other pension payments. This essentially caused a huge windfall in Social Security payments to people who did not pay for the benefits.
This week, the Social Security trustees issued their first annual report since the Social Security Fairness Act became law. Unsurprisingly, the system is now set to go bankrupt nine months earlier than the trustees predicted last year, thanks to that act. Apparently, when you give away additional benefits without asking anybody to pay more money into the system, the system goes bankrupt faster. Who knew?
According to the trustees, the Social Security Trust Fund is now set to run out of money in 2033. At this point, the system will only be taking in 77% of the revenue it pays out in benefits. What happens at this point is unclear. The Social Security Act obligates the Social Security Administration to pay full benefits to every legally qualified beneficiary. However, the Antideficiency Act prohibits all government agencies from spending more money than they have. How the SSA will solve this problem is unknown.
In theory, the SSA could cut everyone’s benefits by 23% each month and issue an IOU for the balance. Or it could pay everyone their full payment late. Or it could cut the payments of those beneficiaries with higher payments (the maximum Social Security benefit is about $5,000 a month or $60,000 a year, while the average payment is only $1,916), leaving those with average or lower-than-average payments whole. There literally is no legal guidance on how the SSA should proceed.
ONE BIG, BEAUTIFUL BENEFIT FOR EVERYONE
Ideally, the SSA would never have to make these decisions. Congress should address this problem as it has in the past. The last time the Social Security Trust Fund ran dry, in 1982, Congress waited until the last second before passing a compromise that cut benefits and raised taxes to make the system solvent again. Congress should act to extend the life of the Social Security Trust Fund, which is exactly the opposite of what Biden and Congress did last year with the Social Security Fairness Act.
The next presidential race is in 2028. No matter who wins, that president will be running for reelection with the bankruptcy of the Social Security Trust Fund staring them in the face in the first year of their second term in office. This is no longer an issue that politicians can ignore. The end is near. And the sooner Congress acts, the less painful the solutions will be.