OPINION:
The Social Security crisis is a ruse for populists on the left and right to advance agendas.
The Social Security Administration projects that the trust fund for the old-age pensions will be depleted in 2032.
If Congress does not act, pensions will be cut to what can be financed by payroll taxes alone — about 78% of promised benefits.
In 1983, bipartisan reforms reversed modest deficits and built surpluses in the Social Security trust fund. However, slowing economic growth, declining birth rates, limits on immigration, increasing life expectancies and unfunded new benefits put the trust fund into deficit.
The Biden administration boosted benefits for recipients who spent part of their careers in state and local governments, where they did not pay payroll taxes.
The One Big Beautiful Bill Act implicitly increased benefits by reducing income taxes on Social Security benefits that are diverted into the trust fund.
From 1983 through 2009, dedicated taxes exceeded benefits paid.
Afterward, the SSA used some of the interest earned on Treasury securities held by the trust fund, but eventually had to begin selling them. That added to overall federal government borrowing, increased the amount of Treasury securities in circulation, and raised interest rates.
Since 2025, the gap between payroll taxes collected and benefits paid has been 0.82% of gross domestic product, or about 14% of the overall government deficit of 5.8% of GDP.
In 2032, Congress could make up the Social Security shortfall by diverting other tax revenue, and nothing consequential would happen to the overall federal deficit, Treasury securities sales or their wider macroeconomic effects.
The historical data and projections for overall federal budget deficits issued by the Congressional Budget Office include Social Security and Medicare deficits and surpluses, just like other government activities.
Those projections assume that Congress enables continued full pensions after 2032 without any additional taxes.
In 2033, the Social Security pension deficit is projected to be 1.01% of GDP, and the overall federal deficit 6.3%.
Importantly, most of the increase in the overall deficit in 2025 is attributable to other federal programs.
Something radical happens with federal finances only if Congress does not act; then, the overall deficit falls to 5.3%.
Plans to reform the pension system generally come down to increasing payroll taxes, raising the retirement age or cutting benefits — for example, capping payments to seniors with other wealth and income.
They all amount to targeting the elderly to solve the government’s wider deficit problem or to freeing up resources for programs such as federally funded childcare, “Medicare for All,” a universal basic income and more military spending.
For most seniors, Social Security pensions are supplemented by other sources of income.
Seniors are convenient targets because they are wealthier than previous generations.
In part, that is thanks to them relying more on tax-deferred retirement savings accounts — previous generations were more likely to have defined-benefit private pensions — and to a buoyant stock market and rising home values.
They are wealthier in both absolute and relative terms than younger generations.
The alleged Social Security crisis offers an opportunity for organizations such as the Progressive Policy Institute to disguise wealth taxes as reforms.
President Franklin D. Roosevelt was motivated to create Social Security because, in 1933, about half of the elderly were living in poverty. Today, that figure is about 6%.
Roosevelt explicitly wanted the pensions paid for by a payroll tax, even though other funding sources made better economic sense to protect the program from politicians.
In his words: “I guess you’re right on the economics. They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”
Currently, the benefits pensioners receive are computed by summing their lifetime payroll taxes paid, adjusted for increases in the average worker’s wage. After retirement, benefits are adjusted based on the Consumer Price Index for Urban Wage Earners and Clerical Workers.
The benefits structure is already progressive. The formulas award lower-income workers a higher percentage of their lifetime payments than those with wage and salary incomes closer to the payroll tax earnings cap (currently, $184,500).
The Progressive Policy Institute proposal would take this further by awarding benefits based on the number of years worked, rather than the amount a worker pays into the system.
That would further raise benefits for low-income workers and lower the benefits paid to wealthier individuals, even though they paid for those benefits through payroll taxes. It is effectively a wealth tax.
It would confiscate some of the savings to create a minimum lifetime income for those who work at least 20 years.
Those sound a lot like a page from the agenda of Democratic Socialists of America.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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