Social Security's Viability
And How Income Inequality, the Big Beautiful Bill and Deportation Negatively Affect It!
There has been extensive discussion over the last couple of decades about whether Social Security is going broke. The short answer is no, still, if Congress and the President do not act soon, recipient benefits will be significantly reduced in the future. To better understand this situation, we need to go back forty-two years to 1983. In that year, Congress passed, and President Reagan signed it into law on April 20, 1983, the Social Security Amendments of 1983.
In a Social Security Bulletin written by John A.Svahn and Mary Ross in July 1983, the introduction reads as follows:
“This article traces the legislative history of the new law from the report, on January 20, 1983, of the recommendations of the National Commission on Social Security Reform (which formed the basis of this legislation) to enactment, on April 20, 1983, of Public Law 98-21. It also analyzes the provisions of Public Law 98-21, which, among other things, delay the annual cost-of-living adjustments in benefits from July to January of each year, make up to one-half of the benefits received by higher-income beneficiaries subject to income taxes, gradually raise the retirement age early in the next century, call for the earlier implementation of scheduled payroll tax increases, and put new Federal employees under the Social Security program. The legislation also establishes a new system of prospective payment for hospital services under Medicare and extends supplementary unemployment compensation benefits that otherwise would have expired in March 1983.
The changes summarized in the above quote were designed to keep Social Security sound for seventy-five years. The expectation was that Congress would need to adjust Social Security periodically to reflect changes in demographics and other factors. At the time, the National Commission on Social Security Reform utilized the most accurate available data to make its projections. By the 1990s, it was becoming obvious that the large population bubble created by the baby boomers would deplete the Social Security Trust Fund upon the boomers’ retirement. But for the last three decades, Congress and several Presidents have chosen not to make adjustments that would have kept the trust fund financially secure.
Fast forward to 2033. This is the year when major cuts in Social Security benefits will be necessary if Congress does not act. According to Marc Goldwein of the Committee for a Responsible Federal Budget, the typical cut for a typical family would be approximately $18,000 annually.
What has caused this large deficit? Most of it can be attributed to demographics, namely lower birth rates and longer life expectancies. But the other major factor is the widening wage gap. In 1983, the decades-long widening of the wage gap had just begun and was not considered an issue at the time.
In recent years, the flow of immigrants to the United States has actually slowed, which is the time when Social Security would reach insolvency. Thus, mass deportations and travel bans to the U.S. in 2025 will have a negative effect. This is because taxes and Social Security deductions are paid into the federal government from non-citizen workers. Just as it is for citizens, this is true for illegal immigrants as well, even though illegal immigrants are not eligible for Social Security benefits at the time of retirement. The loss of Social Security payments from those immigrants who have been deported will hasten the time of insolvency.
Finally, retirees pay taxes on the income they receive from Social Security benefits. The income taxes collected on Social Security income are allocated back to the Social Security Trust fund. Many of these retirees are at income levels in the higher tax brackets that will benefit from income tax cuts in the “Big Beautiful Bill”. The lower taxes paid by these retirees means the tax on their Social Security benefits will also be lower, and thus less money will be returned to the trust fund. In Fact, the effect of fewer immigrants in the workforce and tax cuts in the Big Beautiful Bill are two of the four reasons that caused the fund’s trustees to reduce the insolvency date from 2034 to 2033 this year.
As you can see, social injustice plays a major part in the financial shape of Social Security. It’s not too late, but time is running out, and the longer Congress waits to fix this, the fewer the alternatives it will have to rectify the problem.
There are only a few ways to bring social security back in line. Social Security taxes can be increased, the $176,000 wage cap can be raised, an Employer Compensation Tax (ECT) can be initiated, benefits can be cut, the retirement age can be extended, or a cap on cost-of-living increases for high-income beneficiaries can be implemented.
The Heritage Foundation’s Project 2025 suggests that the federal government could also borrow the funds to solve the problem, but the Commission for a Responsible Budget explains that this would cost $160 trillion more than doubling the federal deficit and literally bankrupting the nation! So this is really not a solution.
Several of these options are not particularly desirable. Reducing benefits when many people struggle living on Social Security as their only income would be disastrous and cause other problems for our economy. For many people who currently struggle with the wages they make, increasing what they pay into Social Security would only make things worse. Finally, for many people in jobs that don’t require a great deal of physical work could probably work to 70 years of age with no problem; in fact, many already do. But for those who work in physically demanding jobs, even the current retirement age of 67 years old is a problem.
Most of those proposing solutions are considering a combination of raising the wage cap on higher income earners, an ECT, and a cap on cost-of-living increases for higher income retirees. Currently, there is a cap of $176,000 on the amount of wages that are subject to FICA deductions. Once a person reaches that threshold, no wages are deducted for the remainder of the year for Social Security. So a person who makes $1,760,000 a year pays no more into Social Security than a person making $176,000 a year. Some have suggested this cap be raised to $400,000 a year, others suggest $500,000 annually, and still others promote having no cap at all.
Currently, the employer matches the employee's FICA tax dollar-for-dollar. According to the Committee for a Responsible Federal Budget, “It would replace the 7.65 percent ‘employer-side’ payroll tax with a new flat Employer Compensation Tax (ECT) imposed on the full cost of all compensation firms pay each year. The worker-side payroll tax and benefit calculations would remain the same as under current law, which are based on wages and up to the current law tax cap for Social Security.
The ECT would apply to all compensation costs, including all wages below and above the current tax cap, employer-sponsored insurance premiums, health savings account contributions, employer retirement contributions, stock options, worker compensation premiums, transportation benefits, and other fringe benefits.” You can see how including all compensation in the computation would raise significant additional revenue.
The annual cost-of-living adjustment (COLA) is the same percentage for all beneficiaries; they receive the maximum Social Security benefit, and those who receive the minimum. Putting a cap on COLA would mean that everyone would get a cost-of-living adjustment up to a certain level of Social Security income. But any income above the cap would not be subject to the increase. This would effectively lower the relative cost of future benefits.
As a call to action, I would ask all of you to encourage members of Congress to take action on stabilizing Social Security as quickly as possible.
Souces:
Social Security Amendments of 1983: Legislative History and Summary of Provisions, by John A. Svahn and Mary Ross, Social Security Bulletin, July 1983/Vol. 46, No. 7.
The future of social security benefits, Interviews with Democrat Martin O’Malley, Former Social Security Commissioner, and Marc Goldwein from the nonpartisan Committee for a Responsible Federal Budget, Ben Kiefer, Iowa Public Radio, Dec 23, 2025.
Analysis of the 2025 Social Security Trustees’ Report, Committee for a Responsible Federal Budget, June 18, 2025.
An Employer Compensation Tax for Social Security and Medicare, Committee for a Responsible Federal Budget, Oct. 16, 2025