Next President’s Social Security Dilemma

Pending the result of next week’s presidential election, a new government will form in the White House early next year and Social Security will be one of the first challenges it faces.
While both major-party nominees, Republican former President Donald Trump and Democratic Vice President Kamala Harris, have campaigned on multiple fronts to win the votes of the American electorate, Social Security has largely fallen by the wayside despite an impending funding cliff that could see benefits cut in the next decade.
Funded by a combination of taxes and trust funds, Social Security is by far the largest direct expense of the U.S. government’s annual budget, amounting to $1.3 trillion, or 5 percent of GDP, in 2023. It pays out benefits to more than 70 million retirees, disabled people and relatives or dependents of deceased workers every year.
Now, it is facing depletion of its Old-Age, Survivors and Disability Insurance (OASDI) program trust funds, something the next administration would be wise to solve, according to experts who have spoken with Newsweek. If a solution is not found in the coming years, benefits could be cut by 21 percent in 2034, according to the most recent annual report by the Social Security Administration’s (SSA) Office of the Inspector General.
Despite its importance, Social Security has not been big on the agenda in this presidential race. While candidates have put forth plans regarding taxes, including canceling levies on payments and raising payroll taxes for America’s highest earners, neither has directly touched on how to solve its impending funding cliff, despite the future of benefits being a concern for the vast majority of voters and considerable contribution to later-life incomes.
The Committee for a Responsible Federal Budget (CRFB), a nonpartisan public policy think tank, said in September that a retired couple with “medium income” who stop working in 2033 could stand to lose $16,500 from their annual retirement allowance in a scenario in which the SSA’s solvency is not addressed. A single medium-income person would lose about $12,400.
“Americans, on average, depend on Social Security benefits for close to 40 percent of their retirement income. If nothing is done to address shortfalls, the expected 20 percent reduction in benefits will significantly impact many retirees’ ability to maintain their lifestyles,” Stephen Kates, principal financial analyst for RetireGuide.com, told Newsweek.
This is not the first time the SSA has faced an insolvency predicament, with the early 1980s being another crunch time for the government agency.
In 1983, reforms initiated by then President Ronald Reagan aimed to secure the SSA for the next 80 years or so. The Greenspan Commission on Social Security Reform was established to investigate the issues and deliver a solution that would extend its solvency well into the future—originally pinned at 2060, almost 80 years in the future.
Enacted solutions included a raise in payroll tax, requiring government employees to pay into Social Security for the first time, and raising the retirement age to 67, which it reached in 2022 for those born in 1960 and after.
Burt Williamson, a retirement specialist at Connecticut-based advisers PlanPrep, told Newsweek there are several avenues the next president can take to tackle the issue. He said they should “draft an executive order as soon as entering office to appoint a commissioner to oversee a bipartisan commission” that would evaluate the situation and “have the responsibility of recommending workable solutions.”
Of several solutions, Williamson said gradually eliminating the cap on payroll taxes—$168,600 this year and $176,100 for 2025—effective immediately, would help ease financial worries. Currently, employees and employers pay 6.2 percent tax on income up to this amount, which goes directly to Social Security. An additional 1.45 percent goes to fund Medicare and is not subject to the same cap.
Williamson explained that this would affect the top 6 percent of wage earners and their employers, having “the greatest impact and provide much-needed revenue the fastest,” although it would likely be unpopular with those subject to seeing their payroll tax amounts go up.
Another option would be to invest up to 10 percent of future inflows into a “longevity account to grow for the future.”
“This would not be privatization, but a side portfolio as part of the Social Security trust fund,” he explained, saying it could be managed by a appointed non-partisan committee, and that other government accounts should not be able to borrow from it.
Other sources of revenue could be made from raising the retirement age, as proposed by The Heritage Foundation, the conservative think tank behind Project 2025. The American Academy of Actuaries said increasing the 6.2 percent tax contributions to 7 percent could be another option.
Whatever path is taken, Williamson said it needs to be done in good time, and with the American people fully onboard.
“After satisfactory solutions are presented to the president, he or she needs to encourage Congress publicly to pass legislation quickly without delay, or hold press conferences informing the American people of the delays and why,” he said.
Both candidates have different visions for the SSA.
Trump’s economic plans would worsen the agency’s financial prospects, according to a recent report by the CRFB. Through a combination of tax cuts, including eliminating levies on Social Security income, and a hardline immigration policy, the committee found Trump’s policies would increase Social Security’s 10-year cash shortfall by $2.3 trillion through fiscal year 2035 and bring forward the depletion of the trust funds to 2031.
Responding to the report, Trump campaign national press secretary Karoline Leavitt told Newsweek: “The so-called experts at CRFB have been consistently wrong throughout the years. President Trump delivered on his promise to protect Social Security in his first term, and President Trump will continue to strongly protect Social Security in his second term.
“The only candidate who poses a threat to the solvency of Social Security is dangerously liberal Kamala Harris—whose mass invasion of millions of illegal aliens will, if they are allowed to stay, cause Social Security to buckle and collapse.”
Harris’ campaign website says that if she wins, she “will strengthen Social Security and Medicare for the long haul by making millionaires and billionaires pay their fair share in taxes.”
President Joe Biden has proposed to apply payroll taxes to income above $400,000 per year, a change that would keep the trust fund solvent until 2066, according to the Social Security Office of the Chief Actuary.
“While unfortunate, it’s not surprising that Social Security hasn’t played a more pivotal role in the current presidential election since I am sure neither party wants to tell Americans what’s required to fix the underlying issues—higher taxes and/or lower benefits—when they are looking for votes,” Nassau Financial Group’s Tom Buckingham told Newsweek.
“Unfortunately, the government continues to kick the can down the road, which makes it increasingly difficult to address the issues. The bottom line is that we likely need a combination of unpopular changes, including higher taxes, later retirement dates and lower benefits.”
Correction 11/04/2024 10:48 a.m. ET: This story was amended to make clear the American Academy of Actuaries did not advocate for an increase on tax contributions.