How Progressive Schemes to ‘Reform Social Security’ Are a Wealth Tax
Social Security Crisis is a ruse that populists are using to advance their agenda under the banner of reform.
The Social Security Administration warns that the trust fund that supports old age pensions will be depleted in 2032.
If Congress doesn’t act, benefits will be cut to what can be financed by payroll taxes alone—about 78% of promised levels.
In 1983, bi-partisan reforms reversed modest deficits and built surpluses in the trust funds. But slowing economic growth, declining birth rates, limits on immigration, longer life expectancies and unfunded new benefits put the trust fund into deficit.
The Biden Administration boosted benefits for state and local government workers, and President Trump cut income taxes on Social Security benefits that are diverted into the trust fund.
From 1983 to 2009, dedicated taxes exceeded benefits paid.
Afterwards, the SSA used some of the interest earned on Treasury securities held by the trust fund but eventually it had to start selling off those securities. That added to the overall federal deficit and increased Treasury securities in circulation and interest rates.
Since 2025, the gap between payroll taxes collected and benefits paid has been 0.82% of GDP or about 14% of the 5.8% of GDP overall government deficit.
In 2032, Congress could make up the Social Security shortfall by diverting other tax revenues and nothing consequential would happen to the overall federal deficit, Treasury securities sales or their wider macroeconomic effects.
The historical data and projections for overall federal budget deficits issued by the Congressional Budget Office include Social Security and Medicare deficits and surpluses, just like other government activities.
Those projections assume Congress enables continued full pensions after 2032 without any additional taxes.
In 2033, the Social Security pension deficit would be 1.01% of GDP and overall federal deficit 6.3%.
Importantly, most of the increase in the overall deficit from 2025 is caused by other federal programs.
Something radical only happens with federal finances if Congress doesn’t act—then the overall deficit falls to 5.3%.
Plans to reform the pension system generally come down to increasing payroll taxes, raising the retirement age or cutting benefits—for example, caping payments to seniors with other wealth or income.
They all amount to targeting the elderly to help solve the government’s wider deficit problem or to freeing up resources for things like federally funded childcare, Medicare for all, a universal basic income and more military spending.
For most seniors, Social Security pensions are supplemented by other wealth and pensions.
Seniors are a convenient target, because they are wealthier than the seniors of past generations.
In part, that’s thanks to them relying more on tax-deferred retirement savings accounts—previous generations were more likely to have defined-benefits private pensions—and to a buoyant stock market and rising home equity values.
The alleged Social Security crisis offers an opportunity for outfits like the Progressive Policy Institute to disguise wealth taxes as reforms.
President Roosevelt was motivated to create Social Security because in 1933 about half the elderly were living in poverty, today the figure is about 6%.
Roosevelt explicitly wanted the pensions paid for by a payroll tax, even though other sources of funding made better economic sense to protect the program from politicians.
In his words, “We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”
Currently, the benefits pensioners receive are computed by summing their lifetime payroll taxes paid adjusted for increases in the average wage.
After retirement, benefits are adjusted according to the Consumer Price Index.
Already, the benefits structure is progressive. The formulas award lower income workers a higher percentage of lifetime tax payments than those with wage and salary incomes closer to the payroll tax earnings cap—currently, $184,500.
The PPI proposal would take this redistribution scheme further by awarding benefits according to the number of years worked not the amount a worker pays into the system.
That would raise benefits for low-income workers. But it would lower benefits paid to wealthier individuals—even though they paid for those benefits through payroll taxes—and is effectively a wealth tax.
It would transfer some of the savings to create minimum lifetime income for those who work at least 20 years.
Those sound a lot like a page from the emerging agenda of Democratic Socialists of America.
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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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