The release of the 2025 Social Security Trustees Report led to lots of hyperventilating in the media as well as dire warnings about the program facing insolvency. While people can earn a good living pushing scare stories on Social Security, they have little basis in reality.

To be clear, the most recent trustees report does show the program facing a shortfall so that in nine years it will not be able to pay full scheduled benefits. But it is important to get a clear picture of what this means.

First, let’s look at the numbers on their face. Under current law, the government cannot pay out benefits if the money is not in the Social Security trust fund. The projections show that in 2034, after the bonds held by the trust fund have been sold off, the program will have enough money to pay 82 percent of scheduled benefits.

While a benefit cut of 18 percent would be a terrible thing for most beneficiaries, 82 percent is still very far from zero. So, the idea that the program will just go away is a complete invention. Congress can vote it out of existence, but that doesn’t seem very likely given the share of the population that either are currently beneficiaries or expect to be getting benefits in the near future.

Another point about these numbers that deserves to be attacked head on is the idea that Social Security in its current structure is a major cause of generational inequality. While the retirement of the baby boom cohorts substantially reduced the ratio of workers to retirees, there is little change projected in later years in this century. This means that the share of scheduled benefits that could be paid, absent any action from Congress, falls only modestly in subsequent decades.

Going out to 2065, when today’s 25 year-olds will be turning 65, the program is projected to be able to pay 74 percent of scheduled benefits. This would mean that if Congress never touches the program and the projections prove correct, a lifetime medium earner would get a benefit of $30,900 in 2065, more than 20 percent higher than the $25,200 a medium earner would get retiring today (all numbers are in 2025 dollars). Where’s the generational inequality?

The fuller picture would be somewhat more complicated. We expect a retiree’s income to bear some relationship to their income while working. The benefit the program would be able to pay in 2065, absent any changes, would be a lower share of lifetime earnings than is the case today. But then again, why are workers in the next forty years expected to have higher lifetime earnings? It’s because we have given them a larger capital stock and better infrastructure and level of technology than what we had when we entered the workforce.

We can have serious debates about whether the rate of increase in real wages and living standards is as rapid as it should be, but there is no doubt that the direction of change is positive, at least on average (an important point I will return to shortly). If we want to concern ourselves with generational inequality, we should look to the condition of the planet we are handing down to our kids. If we don’t do more to address global warming the earth will be a much less pleasant place in 30 or 40 years than it is today. That is a real and serious harm to young people.

How Big is the Social Security Funding Gap and How Did We Get Here?

There are two important points about the projected funding gap. First, it is more of an accounting problem than an economic problem. Second, it is not especially large relative to other expenses the country has faced.

The first point is simply that when the trust fund runs out of bonds, as is projected in 2033, it does not create a new economic burden for the country. The government will not be paying substantially more in benefits in 2034 than in 2033, it just won’t have bonds in the trust fund to cover part of the expense.

That is an accounting issue. The increase in spending on Social Security from 2033 to 2034, measured as a share of GDP, is just 0.03 percentage points. That would be less than 1.0 percent of the Pentagon’s budget. This is the extent of the increased economic burden in the year the trust fund faces depletion.

If the goal is to fully fill the annual funding gap, the projections imply that it would require increased revenue and/or a cut in spending of a bit more than 1.0 percent of GDP (one-third of the Pentagon’s budget). The reason for this gap is that the program has been spending more than its income for more than a decade with the annual gap growing continually larger over this period. The bonds accumulated in the trust fund had been filling this gap.

There is nothing nefarious here. This was all by design and fully public. The last major adjustment to the program in 1982 structured it to build up a large trust fund while the baby boomers were in the workforce, to be spent down when they retired.

If the point is to fill the gap by committing additional revenue to the program, we could raise the cap on wages that are taxed (currently $176,100), we could increase the tax rate, or we could assign other government revenue to the program. The last change would literally just be accounting. If we said that $300 billion a year of general revenue (roughly 1.0 percent of GDP) would be paid into the Social Security fund, it would reduce or eliminate the shortfall in the Social Security trust fund, but it would have no effect on the budget deficit as it’s usually reported. In short, we can easily come up with the money to pay all scheduled benefits.

If the government decides to raise additional tax revenue to cover the Social Security shortfall, it makes sense that the bulk of it would come from rich. They have been the big winners in the economy over the last half century.

But the logic for taxing the rich goes even further. The upward redistribution over this period was a major factor in creating the shortfall in the program. In 1982, the last time Congress made major changes to the program, only 10 percent of wage income was above the cap and escaped taxation. Currently close to 18 percent of wage income is above the cap.

In addition, in the years since 2000 there has been a major shift from wages to profits. In 2000, profits were 18.2 percent of corporate income. In 2024, they were 28.3 percent. If profits had remained at their 2000 share, the average wage in the corporate sector would be more than 12 percent higher than it is today. The combination of the upward redistribution of wage income, from ordinary workers to highly paid professionals, Wall Street types, and corporate executives, and the shift from wages to profits, explains much of the shortfall the program is now projected to face. That makes a good argument for changing the program so that the winners from this upward redistribution pay more to support the program.

There is one other point worth making about the prospects for additional tax revenue. We could raise the tax rate. While any additional payments to support the program should come mostly from the rich, it is not absurd to think that ordinary workers can pay a higher tax rate. After all the program is designed to support a considerably longer retirement than was the case in 1990, the last time there was any increase in the tax rate.

From 1966 to 1990 the tax rate on wages rose from 5.8 percent to 12.4 percent, an increase of 6.6 percentage points over 24 years. By contrast, there has been no increase in the last 35 years. If the tax were to increase, say by 2 percentage points over the next two decades, it hardly seems like a major crisis. The average real annual wage is projected to be 32 percent higher in 2045 than it is today. It would be hard to make a case that workers in 2045 would be suffering a major hardship if we took back 2.0 percentage points of this increase in the form of higher taxes for Social Security. We do have to worry about inequality, but for the last decade, workers at the bottom have been roughly keeping pace with average wage growth.

It is understandable that politicians running for office don’t like to talk about tax increases, but in this respect, Donald Trump can perhaps offer a useful lesson. He is imposing import taxes (tariffs) that could well reach $400 billion a year. This is equivalent to a 4.0 percentage point increase in the payroll tax. He is doing this without even getting approval from Congress. To date, this tax hike has prompted only limited public complaint. It is hard to believe that a tax increase, half this size, phased in over twenty years, to support the country’s most popular social program, would be an impossible political lift.

Social Security is a Great Program

On this last point, it is worth reminding everyone how incredibly popular Social Security is. It enjoys overwhelming public support across the political spectrum, with even supermajorities of Republicans expressing support for the program.

The reason is obvious. For more than 80 years Social Security has provided a substantial degree of economic security to the country’s working population and their families. It provides this security even to high-income workers who may not think they need it, because even a highly paid doctor or lawyer may find they are no longer highly paid after a serious illness or car accident.

It also is incredibly efficient, with administrative costs for the retirement program that are less than 0.4 percent of the benefits paid each year. By all measures the amount of fraud in the program is minimal. Elon Musk’s DOGE team actually helped to confirm this basic story. While they went in with grand promises to root out waste and fraud, they essentially found nothing and instead pushed absurd lies like 20 million people with birthdays putting them over age 120 getting benefits or 40 percent of the phone calls to the agency were people trying to commit fraud.  (The small grain of truth in the 40 percent figure was that 40 percent of the identified instances of fraud were initiated through phone calls, which means 60 percent were either initiated on-line or through in-person visits.)

In short, Social Security does what it is designed to do in providing retirement security, as well as security against disability, for workers and their families. As much as the media and its political enemies like to hype the scare stories, there is no reason it should not be around long into the future and paying out full scheduled benefits.

This first appeared on Dean Baker’s Beat the Press blog.

The post Don’t Buy the Scare About Social Security appeared first on CounterPunch.org.

This post was originally published on CounterPunch.org.