Social Security Deadline Approaching

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.wsj.com/finance/investing/social-security-has-a-big-problem-its-already-here-ab7e006f?mod=hp_lead_pos11

Social Security Has a Big Problem. It’s Already Here.

By Spencer Jakab, The Wall Street Journal, June 17, 2026

You may have read recently about a retirement crisis that’s just over the horizon. It’s actually already here.

The 33 senators elected to full terms in November will have the unpleasant distinction of being the first U.S. politicians who might have to deal with automatic Social Security benefit cuts while in office. Actuaries now peg the fourth quarter of 2032 as the date when the Old-Age and Survivors Insurance Trust Fund will run dry, reducing checks by more than a fifth…

They could include higher payroll taxes or extending the levy to investment income.

Congress also could direct the general federal budget to plug the gap, but that would mean either raising regular income taxes or borrowing much more money. Even with rosy assumptions such as no recessions ever, the Congressional Budget Office already projects a federal budget deficit of $2.7 trillion in fiscal year 2033.

Benefit cuts could help plug the gap too, such as by slowing cost-of-living adjustments or paying less to wealthy retirees. But Social Security is a large enough chunk of national income that the consumer spending impact would be felt no matter who gets smaller monthly checks…

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The easiest change will be increasing the percent of Social Security income that is taxable. Under the current system, only low-income taxpayers - usually people who are living on Social Security with minimal additional income - do not get taxed on their Social Security. It doesn’t take much additional income to make Social Security taxable. The sliding scale maxes out at 85% of Social Security taxable. It wouldn’t be hard for Congress to increase this to 100% since this is reportable income.

I have long opined that eventually there will be a means test for Social Security. But there’s a huge difference between income (which is reported on W-2s, 1099s, etc. so is easily quantified and tracked) and net worth (which is hard to calculate since much could be assets like real estate and private businesses). There would immense push-back since that would be a qualitative change. Many who paid Social Security taxes for decades would object to turning it into a welfare program for low net worth people.

Since the term of a Senator is 6 years, the trust fund will run dry during the term of any Senator elected in 2026.

Time to stop kicking the can down the road.

From a Macroeconomic standpoint, declining payments will reduce spending. That would reduce economic growth and also reduce inflation. Increasing the government deficit would increase interest rates.

Wendy

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Let’s not forget Medicare is also running out of funds.

Congress needs to address there issues. We hope soon—but after the 2026 election.

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There simply isn’t time to rewrite the Social Security law between now and November.

Wendy

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There’s already a big means test for Social Security.

Under the Average Indexed Monthly Earnings (AIME) calculation that determines the size of your benefit, low income workers get credit for 90% of their earnings, while high income earners above the “2nd bend point” only get credit for 15% of their FICA wages. That’s a ratio of 6 to 1 – quite a means test.

But a max-FICA wage earner can use this arithmetic to his benefit by retiring early. For someone earning max-FICA wages from their mid to late 20’s, they’ll likely reach the “2nd bend point” by age 45 or so. There they’ll receive 77% of the maximum benefit, while only paying about half the lifetime FICA taxes vs. a co-worker who soldiers on to post 35 years of max-FICA earnings.

Sometimes it pays to have a lot of zeros in your Social Security earnings record.

intercst

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Medicare & social security are considered earned benefits. But because of demographics & inadequate tax rates supporting those programs and rising health care costs and now k economy/increased income inequality, the current design for funding those programs are inadequate.
I believe it would be unfair to place that funding on the current working population.
There could be a shared cost placed on working & retired workers. But what about low income working or retired workers. Are they exempt?
The current “trust fund” is already in US debt [Treasury bonds]. That money has already been spent long ago.
Perhaps the better solution would be the federal government acknowledge that citizen seniors are owed a pension & healthcare. That it should be funded out of general revenue with tax increases based on income & corporate taxes. Perhaps realized capital gains should be taxed as income?

Some of the billionaires would complain. But according to Jeff Bezos the bottom 50% in income currently only pay 3% of total income tax received by the US government.

Perhaps the federal government should attempt not only to solve Social Security & Medicare future funding but increasing income inequality within the USA.
After all, the wealthy already pay extra [based on modified adjusted gross income] to receive the Medicare benefit.

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Bingo. Realized capital gains should be taxed as income and subject to FICA – even for those over age 65 and collecting SS benefits.

Medicare currently has a “means test” in the form of the IRMAA penalty, but that only affects the 8% wealthiest beneficiaries.

intercst

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That statement will get you placed on the billionaire enemy’s list! :wink: :laughing:

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This isn’t brain surgery, there are lots of things that can be done to fix all the trust funds that are on a collision course with insolvency. Where there’s a will, there’s a way. Too bad our representatives lack the will.

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Yes, it cannot be done quickly. And you suspect a study group will be commissioned to review the needs and make recommendations. But then the discussions and negotiations begin. And w something so complex getting it done in 6 mo will be a problem. So perhaps there will be a patch of some sort to continue benefits while the negotiations continue.