"Social Security is on a collision course toward insolvency"???? You may have seen an uptick in this type of talk in the last couple of weeks. So what's it all about?
Social Security is hurtling toward a fiscal cliff that, if left unaddressed, will force an automatic 22% benefit cut for tens of millions of retirees, survivors, and their dependents in just six years.
That's the stark warning from the release last week of the 2026 Social Security Trustees' Report. A nonpartisan fiscal watchdog, the Committee for a Responsible Federal Budget (CRFB), found the program's financial imbalance has reached its most severe point in nearly 50 years—and that inaction by lawmakers is making a bad situation measurably worse.
So let's go into the
summary of the Social Security Trustees report, which is sparking this discussion, and talk about what these findings are, and what can be done.
Let’s first talk about the four main trust funds that Social Security trustees look at. OASI is what we generally know as Social Security, money paid to older Americans and/or dependents of those who have died. DI is basically what we would know as Disability, HI is Medicare’s Hospital Insurance program (Part A), and SMI is Medicare Part B (regular services) and Part D (drugs).
Social Security and Disability comes out of your paycheck via FICA taxes, and also taxes that current recipients pay on their benefits. Medicare Hospital Insurance is another payroll tax that takes 1.45% out of paychecks, and a slight bit more kicks in once you make over $200,000 for individuals or $250,000 for joint filers. Medicare Part B and Part D gets most of its money from “government contributions” – aka tax dollars that the US Treasury uses for this part of Medicare and also a lot of other government programs, but also through premiums paid by Medicare recipients, and a small amount from states on drug payments that Medicaid would have owed.
Now let’s look at the numbers, which show that Social Security paid out $200 billion more than they took in taxes for 2025, while Disability took in nearly $40 billion more than it spent. Medicare Hospital Insurance also had more than $18 billion in surplus, and Medicare Parts B and D basically broke even.
And those “reserves” are the trust funds that are supposed to be able to pay for any overage of expenses vs revenues. As you can see, OASI/Social Security is seeing the amount of its trust fund decline. This will continue and that deficit is slated to grow under current law, which leads to this well-documented finding from the Social Security Trustees.
At that point, Social Security and Medicare Hospital benefits would not be able to be fully paid under current law. So in theory, something will need to be done in the next 6 years or else there would be a significant cut in benefits to make ends meet. The reason why is because under current law, few to no "outside funds" are supposed to pay for Social Security, Disability and Medicare Hospital benefits.
But Congress needs to find ways to fund and change a lot of things in the next 6 years, so why would Social Security and Medicare’s Hospital funding be any different? You already saw how Medicare B and D (aka SMI) gets most of its money from everyday taxes, so why wouldn’t the same be true for the rest of Medicare or Social Security, and keep disruptions for our seniors (and future seniors) to a minimum?
That can be done a number of ways, including, I dunno…..TAXING THE RICH just a fraction more than we are today? We also could possibly make everyone else under 65 buy into Medicare and pay premiums for their insurance (call it some kind of option for the public or something), or just be like any other civilized nation and use a few extra tax dollars to get a simple baseline of medical coverage for all Americans, which likely would cut some of the taxpayer costs that we currently have for medical services to older Americans. Maybe?
But if you don’t want to discuss solutions beyond the current payroll tax-based financing system, we can do that as well. Let’s start with the fact that Disability is running a sizable surplus while Social Security is running a deficit. Since both of those funds are paid for in the same FICA tax withholding from your paycheck, you may wonder if something can be switched up there.
The answer to that question is not only “yes”, but it has been changed numerous times over the years, including as recently as 2019, which was the sunset of
a provision in the 2015 Budget Act that changed the allocations between the two funds for 3 years.
At the time, it was Disability that was running out of money,
as recounted in this Congressional report in early 2016. Over the past few years, Congress has grown increasingly concerned with the financial outlook of the DI trust fund. Cost has exceeded total income since 2009, causing the balance of the DI trust fund to shrink. In their July 2015 report, the Social Security trustees projected that the DI trust fund would be depleted in the fourth quarter of calendar year 2016. Upon depletion of its asset reserves, the DI trust fund was projected to have enough ongoing revenues to pay only about 80% of scheduled benefits. The trustees projected that the OASI trust fund would be depleted in 2035….
The decreasing solvency of the DI trust fund is the result of an increasing imbalance between the fund's income and cost. Over the past 20 years, tax revenues to the DI trust fund have remained relatively flat as a percentage of taxable payroll, whereas cost as a share of taxable payroll has grown markedly. The increase in cost stems largely from the growth in the number of beneficiaries in the program. Between 1995 and 2014, the number of disabled workers and their dependents in receipt of SSDI grew 85%, from 5.9 million to 10.9 million. Because benefit payments account for nearly all program spending, the growth in the SSDI rolls has contributed heavily to the financial difficulties of the DI trust fund….
The Social Security Administration's Office of the Chief Actuary (OACT) projects that the reallocation will extend the solvency of the DI trust fund from the fourth quarter of 2016 to the third quarter of 2022. Although the reallocation will reduce the solvency of the OASI trust fund slightly, OACT estimates that the depletion year for OASI will remain unchanged at 2035.
Needless to say, the DI trust fund is still around in 2026, and has been adding money in recent years. Why is it different now? Because the number of Americans on Disability (at least this form of Disability) stopped the steep rise that it had between 2000 and 2010, and declined from nearly 11 million in 2013 to less than 8.2 million in 2025.
Why is there such a drop? Here’s what the Social Security Administration said in
its report on Disability Insurance last week. …The drop in the 2011-13 period is concurrent with the recovery from the 2007-09 recession. Since 2013, incidence rates through 2025 have dropped to levels well below those expected over the long-term, and even below the levels that would be expected from the economic recovery alone. Contributing factors to the decline through 2019 in disability applications and awards include the changing nature of work in the economy, the improving economy indicated by the low unemployment rate, the greater availability of health care, and increasing job flexibility and accommodation by many employers in a competitive labor market. Incidence rates declined to an extraordinarily low level in 2019, at the end of an extended period of economic recovery, resulting in the lowest disabled-worker prevalence rate for men since 2001, and a similarly low level for women. Incidence rates dropped even further in 2020 and 2021, and to an all-time low in 2022, partly due to the effects of the COVID-19 pandemic. Incidence rates have increased since 2022 but still remain near historically low levels. Future policy changes, technological advancements, shifts in the nature of work, and economic cycles will undoubtedly continue to cause fluctuations in disabled-worker incidence rates.
With that in mind, Congress should at least reallocate the taxes paid in FICA so that Social Security gets more funding and Disability gets less, to get both funds closer to balance. But because Disability collects much less money (just over $191 billion in payroll taxes in 2025), that isn’t going to do much to slow down the depletion of the Social Security fund, as the annual deficit in that program (before interest earnings) is projected to go from $262 billion in 2025 to more than $400 billion in 2030. So a $30 billion shift in allocations would only hold back the depletion date by 1 year, to 2034.
That means there is going to have to be adjustments to how the Social Secuirty system is funded and paid out to keep it fully funded by the time my Xer self is eligible And on the revenue side, the answer is obvious - by raising the limit on the amount of income that Social Security and Disability are taxed on.
Currently, anything past $184,500 in wages doesn't get taxed another dime for Social Security. This situation means that
someone making a $1 million income stopped paying for Social Security on March 9. Yes, that date gets moved back every year as the cap is indexed for inflation (so if 2026's inflation ends up at 4% for example, next year's cap would be near $192,000), but it still makes for yet another tax advantage the rich get that everyday people don't.
Because the ultra-rich have gotten much larger gains than the workers who pay the full Social Security/Disability tax, there is a lot of income in 2026 that avoids the Social Security tax compared to 40+ years ago.
Earnings inequality has contributed to Social Security’s current trust fund shortfall, according to recent research from the Roosevelt Institute, a liberal think tank, student network and nonprofit partner to the Franklin D. Roosevelt Presidential Library and Museum.
The share of earnings subject to Social Security payroll taxes was 90% in 1983. Yet the payroll tax did not rise fast enough to maintain that 90% coverage, according to the Roosevelt Institute. In 2000, it was approximately 82.5% and has since stayed at about that level, with some fluctuations, Roosevelt Institute research found.
About 6% of workers have earnings above the cap, a share that has held steady. But those workers’ real earnings grew by an “unexpectedly large” average of 62% from 1983 through 2000, according to the Roosevelt Institute. Meanwhile, the remaining 94% of workers with earnings below the cap saw their average real earnings go up just 17% during those years.
Back in April,
the Committee for a Responsible Federal Budget ran some numbers on what to do with Social Security now, as well as lamenting the delay in action that makes it harder to keep the current trust funds from going dry.
Had policymakers eliminated the cap and applied the payroll tax to all wages starting in 1995, without crediting additional benefits, it would have generated enough revenue to extend solvency by 60 years to 2094. This would have achieved 75-year solvency at the time (through 2069) and closed 90% of the current solvency gap through 2099.
By comparison, eliminating the tax cap today would extend solvency by just 21 years – one-third as long as back in the 1990s – and close 65% of the solvency gap.
Another option CRFB brings up is “progressive price indexing”, which would keep benefits the same for all current elders on Social Security and won’t change future benefits for the lowest 30% of wage earners. But for other American workers, it reduces future benefits to the increases in prices vs that increase in wages.
The CRFB says that while progressive price indexing wouldn’t do anything to stop annual Social Security deficits today like scrapping the cap would, it would reduce costs for the future to help keep the trust fund in balance down the road.
….while progressive price indexing would no longer delay insolvency whereas eliminating the tax cap would, progressive price indexing would still do more to close Social Security’s long-term structural gap. By 2099, progressive price indexing would almost eliminate Social Security’s cash deficit, while eliminating the tax cap would only reduce it by half – or by less than one-third if new benefits were paid on wages newly subject to the tax.
You can see where the two ideas could be combined, with an immediate scrapping of the cap to avoid any cuts in benefits in the near future, and something like progressive price indexing to keep things relatively stable as Xers and Millenials get old.
Yes, younger generations might not get the amount of Social Security that the Boomers got, but these are also benefits that they wouldn’t have gotten for 20-30 years, and giving them time to adjust allows for a better way to prepare for what they will need in the post-retirement world. Also, if you combined something like A BASELINE OF PAID-FOR HEALTH CARE FOR ALL to cut the out of pocket health insurance expenses for younger people (something that especially crushes lower-income workers), I think they'd accept a slightly smaller Social Security benefit in 2045-2065.
OR….we could just use general fund money to supplement any shortfall vs today. Just like we use general fund money (and borrowing) for shortfalls in highways or our military adventures or whatever it cost to do THIS.
It’s all a choice, folks. Whether it's how you want to pay for maintaining older Americans' quality of life, or in what you decide people of all ages should OR SHOULD NOT have to pay for out of pocket. Or in how many resources our government should have and who we should get those resources from to improve both our economy and the quality of life for Americans.
While there may be a need to change the way we finance Social Security, Disability, and Medicare Hospital Insurance to get the numbers more in balance for the future, we need to stop thinking these programs will “go broke”. Because like anything else involving government programs, nothing goes broke and benefits won’t get cut unless Congress and presidents allow it to happen, and unless the voters allow them to get away with it.
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