There isn’t a social program in this country that’s more important to the financial well-being of Americans than Social Security. In 2023, it singlehandedly pulled 22 million people above the federal poverty line, including 16.3 million adults aged 65 and above.
More importantly, it’s a program an overwhelming percentage of retirees count on to make ends meet. Spanning 23 years of annual surveys by Gallup, 80% to 90% of retirees have consistently responded that Social Security accounts for a “major” or “minor” income source.
Unfortunately, this prized 90-year-old program isn’t on the best financial footing. Strengthening Social Security will require action from our elected officials, which includes President Donald Trump.
But while Trump has pledged to come through for seniors, one of his biggest Social Security promises is going to have to be broken.
President Donald Trump addressing reporters. Image source: Official White House Photo by Andrea Hanks, courtesy of the National Archives.
Social Security’s funding obligation shortfall has topped $23 trillion
Before digging any further, it’s important to understand the dynamics of how Social Security’s financial foundation has deteriorated over time.
Over the previous 85 years, the Social Security Board of Trustees has released an annual report detailing the financial “health” of the program. This report allows anyone to break down how Social Security generates income, as well as track where those dollars end up.
But the most-valuable aspect of the annual Trustees Report is examining how monetary and fiscal policy changes, along with demographic shifts, have adjusted the long-term (75-year) solvency forecast for the trust funds. Keep in mind that Social Security is in no danger of going bankrupt, disappearing, or failing to pay eligible beneficiaries. What is at risk is the continuity of the existing payout schedule, including cost-of-living adjustments (COLAs).
According to the 2024 Trustees Report, the program’s long-term funding obligation shortfall rose $800 billion from the prior-year estimate to $23.2 trillion. In other words, program outlays -- primarily benefits, but also administrative expenses to run Social Security -- are expected to outpace estimated income collected from 2024 through 2098 by $23.2 trillion.
Arguably even more worrisome is the projection that the Old-Age and Survivor’s Insurance Trust Fund (OASI) will exhaust its asset reserves by 2033. The OASI is responsible for paying monthly benefits to retired workers and survivors of deceased workers. If the OASI’s asset reserves deplete in eight years, sweeping benefit cuts of up to 21% may be necessary to sustain payouts through 2098 without the need for any further reductions.
The blame for Social Security’s weakening financial outlook has nothing to do with pervasive myths of congressional theft and undocumented migrants receiving traditional benefits. Rather, it’s the result of numerous ongoing demographic changes, including a historically low U.S. birth rate, rising income inequality, and a significant decline in net legal migration into the U.S.
The OASI's asset reserves are forecast to be gone by 2033. US Old-Age and Survivors Insurance Trust Fund Assets at End of Year data by YCharts.
President Trump’s Social Security promise would increase payouts for around half of all retirees
Most presidents tend to avoid proposing changes to Social Security, because any change will eventually result in some group of people being worse off than they were before. But this didn’t stop Donald Trump from proclaiming on his social media platform Truth Social in late July that, “Seniors should not pay tax on Social Security.”
In 1983, America’s leading retirement program found itself in a somewhat similar situation as today. Without action by lawmakers, Social Security’s trust funds were on track to deplete their asset reserves. The Social Security Amendments of 1983 ensured this wouldn’t happen.
This last major bipartisan overhaul of Social Security provided for gradual increases to the payroll tax on earned income and the full retirement age, as well as introduced the taxation of benefits.
Starting in 1984, up to 50% of Social Security benefits could be exposed to the federal tax rate if provisional income (adjusted gross income + tax-free interest + one-half of benefits) surpassed $25,000 for single filers and $32,000 for couples filing jointly. In 1993, a second tier was added allowing up to 85% of benefits to be exposed to federal taxation if provisional income topped $34,000 for single filers and $44,000 for jointly-filing couples.
While most Americans don’t enjoy paying taxes, the taxation of Social Security benefits is especially hated for one reason: these income thresholds have never been adjusted for inflation.
When the taxation of benefits was introduced more than four decades ago, it was expected to affect around 10% of senior households. But as wages and COLAs have increased incomes over time, more and more retirees are now being exposed to some level of tax on their Social Security check.
Trump’s post that intimates an end to the taxation of Social Security benefits would increase payouts for around half of all retirees.
Image source: Getty Images.
This is a Social Security promise Donald Trump will have to break
On paper, there’s plenty of support for ending the tax on benefits. But what’s popular isn’t always what’s best for Social Security.
Though eliminating this hated tax on benefits would boost Social Security checks for select retirees, it would further cripple the program’s already weakening financial foundation.
Social Security generates income three ways:
- The 4% payroll tax on earned income (wages and salary, but not investment income).
- Interest earned on its asset reserves, which are invested in special-issue government bonds.
- The taxation of Social Security benefits.
The payroll tax is the program’s undeniable breadwinner. In 2023, it accounted for 91.3% of the $1.351 trillion in income collected for the combined OASI and Disability Insurance trust fund.
But over time, the taxation of benefits has been growing into a more important income source. If Trump’s promise were to be kept and this income source were eliminated, an estimated $943.9 billion (from 2024 through 2033) wouldn’t be collected by America’s leading retirement program over 10 years. Not only would this meaningfully widen the program’s $23.2 trillion long-term funding deficit, but it would expedite the OASI’s estimated asset reserve depletion date, and may even increase the magnitude by which benefits would need to be cut. There’s no fiscally responsible way President Trump can keep this promise.
To build on the above, the president would also need 60 votes in the Senate to amend the Social Security Act. The last time either of America’s political parties held a supermajority of votes (60) in the upper house of Congress was in 1979. In short, Trump would need bipartisan cooperation to amend Social Security, which is highly unlikely -- and it’s not even clear what sort of support he’d have from his own party in the Senate.
It's simply a matter of time before President Trump breaks his Social Security promise, and it’ll absolutely be the right decision.
