Former President Franklin D. Roosevelt signed the Social Security Act on Aug. 14, 1935, making today Social Security’s 90th birthday. While the system is arguably the most successful government program in our nation’s history, lifting hundreds of millions of seniors out of poverty, it has also become one of the main drivers of our federal deficits, with the program’s trust fund set to expire in 2033. If Congress does not act, Social Security will look quite different by the time it turns 100.
Since payroll tax collections for Social Security began in 1937, and the first benefits payment was not made until 1940, the program’s first 40 years produced a surplus captured by the Social Security Trust Fund, which was created by the Social Security Amendments of 1939.
However, the Social Security Trust Fund began to decline as Congress passed higher and higher benefit levels without increasing payroll taxes. The stagflation of the 1970s sent the trust fund to the brink of bankruptcy, but Congress acted with the Social Security Amendments of 1977, increasing payroll taxes and changing benefit formulas.
These changes did not prove to be a long-term fix, however, as the system actually went bankrupt in 1982, and the Treasury Department used funds from the Medicare and Disability Insurance trust funds to cover payments until Congress acted. The Social Security Amendments of 1983 were supposed to be a permanent fix, increasing payroll taxes, beginning to tax Social Security benefits of high-income recipients, and raising the retirement age.
Unfortunately, wage gains have not been as evenly distributed as predicted, and the system has been paying more out in benefits than it takes in in payroll taxes since 2008. Technically, the Social Security Trust Fund didn’t start paying out more than it takes in until 2021. However, that is only because of an accounting fiction that credits the trust fund with interest revenue from its existing trust fund assets. The financial reality is that ever since 2008, the Social Security system has been paying out more in benefits than it collects in payroll taxes. That gap can only be made up by reductions in government spending, higher taxes, or borrowing. In other words, Social Security has been a main driver of federal deficits since 2008, even though the trust fund didn’t technically start depleting till 2021.
In 2023, the Social Security actuaries predicted the trust fund would run dry by 2034. Then, in 2024, then-President Joe Biden signed the Social Security Fairness Act, which extended Social Security benefits to state workers who did not fully pay into the system (from its inception, Social Security has exempted some state workers from payroll taxes). These increased benefits accelerated the trust fund’s demise by almost a full calendar year.
The trust fund is set to deplete in 2033, which will leave whoever is in the White House at the time with a unique dilemma. The Social Security Act obligates the federal government to pay people the benefits they are entitled to under the law. However, the Antideficiency Act of 1890 prohibits the government from spending money “in excess of an appropriation.” This will leave the president with the impossible task of obeying two contradictory laws. On one hand, he will be obligated to pay everyone’s Social Security benefits in full; on the other hand, he will only have enough money in the system to meet 77% of those promised benefits.
Many in Washington, D.C., believe that if Congress doesn’t act, the president must cut everyone’s benefits by the same 23%. But that is false. There is nothing in the Social Security Act that says what should happen if the funds to pay benefits are short, nor is there any other guidance in federal law. The president could cap everyone’s monthly benefit at about $2,000, almost double the poverty level, making the system whole.
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Such an action would steeply reduce deficits. Last year, the Social Security system paid out $173 billion more in benefits than it collected in payroll tax revenue. The federal government had to borrow to make up the difference. And the gap between revenues and benefits is set to rise. If the Social Security system were to be balanced by reducing benefits in this fashion, it would easily lower deficits by over $2 trillion a year.
However, the politics of such an action would be volatile. Those wealthier beneficiaries would still be legally entitled to their higher payments. They would have no legal mechanism to force their payments, but they would have political options. Congress would have to act, and it would be painful. The wiser, better course would be for Congress and the president to come to a bipartisan agreement on how to fix the system now.