The Social Security trustees released their latest annual report, evaluating the finances of the country’s premier social program. It faces manageable financial challenges that could become easier if policymakers took large, meaningful steps in the right direction.
Social Security, or the Old Age Survivorship and Disability Insurance program, as it is officially called, will celebrate its 90th anniversary this year. It provides retirement and disability benefits to workers and their dependents and it pays survivorship benefits to widows, widowers, children, grandchildren and other dependents of deceased workers. It is a crucial lifeline for families when a key source of income – a worker’s earnings disappear.
The 2025 Trustees Report highlights how widespread Social Security’s reach is. About 68 million people received Social Security benefits in 2024. This included 54 million retired workers and their dependents, 8 million disabled workers and their dependents and 6 million survivors of deceased workers. In a country of 332 million, according to the Census Bureau, these numbers show that about one-in-five people in the US received some form of Social Security benefit.
The Trustees Report provides an estimate of the program’s long-term future, too. Social Security will face financial challenges within the next decade as income from payroll taxes, trust fund assets and interest on the trust fund will no longer be enough to cover all promised benefits, starting in 2034.
After that date, Congress will theoretically have to enact legislation to raise taxes, cut benefits or some combination of higher taxes and lower benefits to make sure that incomes match promised benefits. The Trustees Report estimates that Congress would have to raise payroll taxes immediately by 3.82 percentage points from 12.4% to 16.22% to cover the financial shortfall from 2025 through 2099. This is a manageable challenge, especially since the pressures on the program will eventually decline, as the Trustees Report shows. This is just another way of saying that managing Social Security’s finances will eventually become easier, after everyone in the Baby Boom generation has passed away.
The underlying assumption of the Trustees Report, though, is that the world is somewhat predictable and stable for the next 75 years. That is obviously a heroic assumption. Importantly, legislation and presidential policies can change, often dramatically, and thus affect Social Security’s future.
The Trustees Report provides a number of long-range sensitivity analyses that show how important policy decisions and their economic impact could be for Social Security’s future.
Let’s start with demographics. Having more people come into the system, either through increased fertility or more immigration, will improve Social Security’s long-term finances since it means more taxpayers for the program. For instance, the baseline scenario assumes an ultimate fertility rate of 1.9 children on average per woman over her lifetime. If that rate rose to 2.1 children, the long-term financial shortfall would fall from 3.82% of the total taxable earnings over the next 75 years to 3.4%. This is a meaningful improvement, but there are no clear policy pathways to raising the fertility rate, as The Hill reports.
In comparison, raising the rate of immigration from a middling annual average 1,253,000 to 1,696,000 would result in the same financial benefit. It is also easier to accomplish for Congress and future presidential administrations through clearer pathways to legal residency and citizenship.
But that is not where we currently are. In contrast, cutting annual average immigration, for instance, through mass deportations, to 833,000 would increase Social Security’s long-term financial deficit from 3.82% of average taxable earnings over the next 75 years to 4.28%. Current anti-immigrant policies are likely to harm the program and increase pressures to cut benefits.
Economic policy could also vastly improve Social Security’s finances. Ensuring faster productivity and wage growth, for example, would significantly cut Social Security’s deficit. The Trustees Report assumes an average inflation-adjusted annual wage growth of 1.13%. This is well below the rate of labor productivity, which recently has hovered around 2.0%, as my co-author and I wrote earlier this year. If policymakers at all levels of government helped to ensure that productivity growth stayed near or above 2.0% and if that translated into wage growth that would come close to that rate – 1.73% in the Trustees Report – Social Security’s shortfall would drop from 3.82% of taxable earnings to 2.64%. This improvement would be three times larger than the improvement from achieving an as-of-yet elusive fertility rate increase.
The Trustees Report’s sensitivity analyses also show that broadening the tax base would help Social Security’s finances. Not all earnings are subject to Social Security’s payroll taxes. People pay those taxes up to an annual cap, which stands at $176,100 in 2025. Earnings beyond that level are not subject to payroll taxes. Because of rising wage inequality, more and more earnings have become concentrated above this tax limit and the tax base for Social Security has shrunk as a result, as my colleagues and I already discussed about a decade ago. Things have not changed since then. The share of total earnings that are subject to Social Security taxes is comparatively low. The Trustees Report assumes that it will stay at 82.5% on average for the next 75 years. Even marginally raising it to 84.0% would reduce the deficit from 3.82% of the taxable payroll to 3.65%, according to the 2025 Trustees Report. Completely eliminating the cap and thus subjecting all earnings to the payroll tax would obviously have a much larger impact. Social Security’s chief actuary calculated, based on the assumptions of the 2024 Trustees Report, the impact of eliminating the earnings limit and subjecting all earnings to the 12.4% payroll tax without offsetting benefit increases for very high income earners. Such a policy change would shrink the deficit from an estimated 3.5% of taxable payroll to 0.95%. Massively broadening the tax base for Social Security would substantially improve the program’s finances, but any step in that direction would have a measurable impact.
Social Security will face some longer-term financial challenges. Congress will have to address those within the not-too-distant future. There are several longer-term policy steps that go beyond raising tax rates or cutting benefits. Some of those steps are relatively easier, though not easy by any means, to accomplish than others. Policymakers should consider those steps such as increasing immigration, ensuring higher wage growth and broadening the tax base, before cutting vital benefits for American families.
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