But this lifeline is fraying. Since 2021, the Social Security Administration has been paying out more than it collects in taxes. Trust reserves are being depleted, and projections show that without reform, the reserves could run out by the mid-2030s. When that happens, Social Security would only be able to pay about 75% of scheduled benefits using incoming payroll taxes alone.

So, what’s being done about it?

The Political “Third Rail”

Social Security reform is often called the “third rail” of American politics—touch it and risk political fallout. Despite warnings from trustees and economists, major changes haven’t been made since the 1980s, when modest reforms helped delay the crisis. Today’s lawmakers face a similar challenge: how to fix Social Security without upsetting the voting public.

Options like raising the retirement age, increasing payroll taxes, or cutting benefits are all on the table—but none are politically easy. Any real solution will likely require a combination of these approaches, paired with creative new ideas.

Trump’s Plan: Relief Now, Questions Later

Former President Donald Trump has proposed eliminating taxes on Social Security benefits for seniors. That could put an extra $560 per year back into retirees’ pockets—a welcome relief during inflationary times. However, that move could cost the program $1.5 to $2 trillion in lost revenue by 2035.

He’s also floated the idea of exempting tips and overtime from federal taxes. While that may help workers now, it would reduce Social Security’s future funding by cutting payroll tax inflows.

According to the Committee for a Responsible Federal Budget, these proposals could push the trust fund’s insolvency date up to 2032—just seven years away. If that happens, benefits could be cut by as much as 33%.

Can Oil and Gas Revenues Save Social Security?

Trump has also suggested using oil and gas reserves as an alternative funding source. While that might sound promising, current government leasing revenues from fossil fuels would only cover about 4% of the Social Security funding gap. Even with booming production, the math doesn’t quite work out.

Economic growth could offer another boost. A stronger economy creates more jobs, which means more payroll taxes flowing into the system. But that alone isn’t a guaranteed fix. Significant legislative and budgetary changes would still be required to make any real impact.

The Bigger Picture: Social Security’s Place in the Budget

Social Security and Medicare together account for 35% of the federal budget. Social Security alone makes up 21.1%—and it’s funded mostly through payroll taxes (91.3%), taxes on benefits (3.8%), and interest income (4.9%).

One frequently discussed solution is lifting the income cap on payroll taxes. Currently, income above $176,100 isn’t subject to Social Security tax. Raising or removing that cap could bring in billions in additional funding, though it would face resistance from higher earners.

What’s at Stake

Eliminating taxes on Social Security benefits might provide short-term relief, but it risks deepening the program’s long-term problems. As costs rise and life expectancies increase, Social Security must adapt to serve future generations. But doing so will require tough choices and political courage.

The question remains: will lawmakers act before it’s too late?

All writings are for educational and entertainment purposes only and does not provide investment or financial advice of any kind.

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