Social Security and Medicare finances look grim as overall debt piles up
Dire new budget projections and high-stakes policy deadlines mean lawmakers may be forced to take up the issue — or face the consequences of inaction.
New estimates are expected Monday to paint a dire picture of the budget outlook for Social Security and Medicare, the massive federal programs for seniors, threatening future benefits and putting fresh pressure on Congress to address the nation’s deteriorating financial health.
Especially since the pandemic, the federal debt has skyrocketed, even as an aging population is placing increasing demands on retirement services. Meanwhile, Congress is contemplating how to find trillions of dollars to avoid widespread tax hikes when the 2017 Trump tax cuts expire next year.
Faced with the prospect of plunging the country into unprecedented levels of debt, fiscal experts say, Congress may be running out of room to keep putting off action.
“Next year will be filled with unavoidably huge fiscal moments, including the expiration of the tax cuts and the need to increase the debt ceiling at the same time that the fiscal picture is likely to continue to deteriorate. This presents a perfect opportunity to actually tackle a number of these big issues as they become increasingly impossible to ignore,” said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget.
Social Security and Medicare are both set to face insolvency within the next decade if no changes are made to the programs’ benefits or funding structures, federal actuaries predict. November’s elections will define which party controls Congress and the White House; either President Biden or former president Donald Trump would be in their second term, if elected, potentially freeing them from the political consequences of legislation on entitlement reforms, some lawmakers privately hope.
Neither Biden nor Trump have released proposals to right Social Security’s finances. Biden has signaled a desire to raise taxes on individuals earning more than $400,000 and devote that new revenue to the Social Security Trust Fund. In his past two State of the Union addresses, the president declared absolute opposition to cutting social safety net benefits.
Trump has floated cuts to the programs, but quickly backpedaled from that position and insisted he wouldn’t support reducing benefits.
The next year will bring major fiscal policy decisions for whoever wins the election and for Congress.
After a near-crisis last year, the debt ceiling suspension that Biden negotiated with congressional Republicans is set to expire Jan. 1 — though a failure to raise the debt limit would be unlikely to trigger a potential default until sometime in the spring. (The government has some last-ditch ways of freeing up extra money to avoid borrowing more.)
And major portions of Trump’s 2017 tax cuts expire at the end of 2025. Lawmakers in both parties want to keep at least some of them on the books, but renewing the whole package would add $3 trillion over the next decade to the nation’s already enormous burden of $28 trillion in publicly held debt.
The last time the nation’s long-term fiscal health was anywhere near the forefront of lawmakers’ agenda was in President Barack Obama’s first term, when he tried, but failed, to work out a sweeping compromise on spending and entitlements with then-House Speaker John A. Boehner (R-Ohio) and other congressional Republicans.
More recently, lawmakers — especially in the Republican-controlled House — have tussled with Biden over parts of the federal budget. But those fights have focused mostly on what’s known as discretionary spending — items such as defense, infrastructure, education and other policies that Congress must approve each year. All told, discretionary spending accounts for a little less than a third of the money the federal government spends, according to the nonpartisan Congressional Budget Office.
The vast majority of the federal government’s spending is on mandatory programs — including Social Security, Medicare and veteran’s benefits — so-called entitlements that have grown dramatically. The United States spent $2.9 trillion on Social Security and major heath-care programs in the 2023 fiscal year, according to the CBO. That’s nearly twice as much as Congress spent on the entire discretionary budget.
“If you can’t deal with your allowance, your pocket change, which is the discretionary part, how are you going to deal with the bigger issues? I just don’t think these people are ready to do it,” Rep. Thomas Massie (R-Ky.), a leading conservative deficit hawk, told The Washington Post. He wears a lapel pin each day at the Capitol that shows a live calculation of the federal debt. “It would probably take some kind of crisis moment to get their attention.”
Social Security and Medicare are funded largely through payroll taxes, with future beneficiaries and their employers paying into trust funds for the programs so retired workers will receive a baseline income and health care. The full Social Security retirement age, when enrollees can draw the largest benefit, is 66 for individuals born before 1954, and 67 for those born after 1960. Individuals can generally enroll in Medicare at age 65.
But the United States is facing a wave of baby boomer retirees, the so-called silver tsunami, that is draining the trust fund’s resources. More than 11,000 Americans will turn 65 every day between 2024 and 2027, according to the Retirement Income Institute at the Alliance for Lifetime Income. That’s 4.1 million potential new beneficiaries each year, forcing the social safety net to pay out far more than it brings in from younger workers.
Without significant changes, Social Security benefits would face a mandatory 23 percent cut by 2034, a hit that would upend millions of Americans’ golden years. Nearly 1 in 5 seniors rely on Social Security for at least 90 percent of their income, according to the Social Security Administration.
“I think the public wants to see a fairer tax code, and I think the public wants to see Social Security and Medicare made secure. And you put those two pieces together, I think you’ve got a winner,” Senate Budget Committee Chairman Sheldon Whitehouse (D-R.I.) told The Post.
So far, policy prescriptions to solve the shortfalls have been few and far between. And any fix would have cascading effects on the global economy.
Cutting benefits — including raising the retirement age, as a leading group of congressional Republicans recommended this spring — is a political third rail and would upend millions of workers’ and retirees’ finances, said Jason Fichtner, chief economist at the Bipartisan Policy Center think tank. Congress could also raise Social Security payroll taxes, or do a little bit of both: A more modest benefit cut and payroll tax increase.
“You can make some changes now that don’t have to be as drastic, but we’re starting to get closer to that point where if we make some changes to the benefits side, they might not kick in soon enough,” said Joel Eskovitz, senior director for Social Security and savings at AARP Public Policy Institute.
Changing Social Security significantly has proved politically unpopular, though.
In the early 2000s, President George W. Bush floated allowing taxpayers to keep a portion of their payroll taxes and invest them in private retirement accounts. Opponents panned the proposal as a partial privatization of Social Security. Some Democrats have also talked about expanding Social Security and Medicare to offer more benefits for lower-income Americans, which would require structural changes to how the programs are funded.
The closer the programs come to insolvency without addressing the underlying budget math, the higher the odds that Congress will just have to authorize more borrowing to pay for benefits, said Brian Riedl, senior fellow at the Manhattan Institute.
That would explode the federal debt and could trigger large-scale consequences, experts warn. Over the course of Social Security’s 75-year budget window, stabilizing the program through debt could mean $21.2 trillion in new borrowing, according to 2023 projections. That would force interest rates much higher on U.S. bonds, Fichtner said.
And with borrowing rates already higher than the economy’s projected growth, that could spark a vicious cycle: Even under solid economic circumstances, debt would grow too quickly for the United States to ever pay it off.
There are already early warning signs of such a scenario. Congressional forecasters projected the U.S. gross domestic product to grow by 2.2 percent in 2025, while the yield on the 10-year Treasury note is already double that, hovering around 4.5 percent.
By Jacob Bogage
Jacob Bogage covers economic policy in Congress for The Washington Post, where he's worked since 2015.
