How Democrats Can Save Social Security—and Win Elections

The infamous Project 2025 document contains 900-plus pages of ideas for strangling the federal government, many of which Donald Trump’s administration has already implemented. But one huge policy area, accounting for roughly one-quarter of all federal spending, is barely mentioned: Social Security. 

Perhaps that’s because its Heritage Foundation authors knew that Social Security is one of the waning policy points on which the right and left still agree. In 2024, 77 percent of Republicans and 83 percent of Democrats said Social Security benefits should not be reduced in any way. 

Yet how to avoid this is likely to be a major issue in the next presidential election. Already, Social Security’s mounting negative cash flow is adding significantly to the federal government’s overall deficits and need to borrow money from the public but worse is yet to come. In June, the Social Security Administration (SSA) projected that the system’s main trust fund, responsible for financing retirement benefits, will run out of money entirely in little more than seven years, which under current law will force steep, across-the-board benefit cuts. 

Since the SSA’s June forecast, Republican policies have worsened the fiscal outlook for Social Security. Contrary to Trump’s claim that immigrants threaten the program, his clampdown on immigration will cost the trust funds. In 2022, undocumented immigrants contributed an estimated $25.7 billion toward Social Security, according to the Center on Budget and Policy Priorities, while typically collecting no benefits. And then there’s the One Big Beautiful Bill Act, passed by the Republicans in Congress and signed by Trump in July. That bill drains an additional $168 billion in revenue from the main Social Security trust fund by reducing the amount of federal income taxes that affluent Social Security recipients pay on their benefits. Because of this loss of revenue, the nonpartisan Committee for a Responsible Federal Budget estimates, future benefits will have to be cut even more than was already in the cards—to a full 24 percent. This amounts to benefit cuts of about $18,100 for a typical dual-earning couple retiring at the start of 2033. Still deeper cuts will be needed in the future. “Policymakers pledging not to touch Social Security are implicitly endorsing these deep benefit cuts,” the committee concluded in its report.

Despite these Republican policy mistakes and the fiscal challenge created by the anomalously large Baby Boom generation, Social Security’s widening cash flow deficits could be closed, at least on paper, simply by increasing the regressive payroll taxes that currently fund the program. According to a 2024 estimate by the Congressional Budget Office, raising payroll taxes from 12.4 to 16.7 percent would be enough to restore the system to long-term solvency. But among the many other downsides to this option, a tax hike of that size on American workers is hardly likely to attract new voters to the Democratic column. 

Fortunately, there is a better way. The fiscal outlook for Social Security may be precarious but it also presents a huge opportunity. It’s possible to save Social Security without raising taxes on the working class, while also providing the system with the revenues it needs in ways that will make Americans healthier and more productive. Better yet, policy changes are available that would significantly improve benefits for middle- and low-income Americans of all generations without compromising the trust fund’s long-term solvency. Whichever party takes advantage of these opportunities first is likely to enjoy enduring political rewards. 

Debate over the future of Social Security should start by grappling with the huge growth of inequality among the elderly. Back when President Franklin D. Roosevelt signed the Social Security Act into law in 1935, older Americans were generally far worse off than their middle-aged children, but there was very little inequality among the elderly themselves: For nearly everyone, old age was synonymous with need. 

But today, while inequality has increased within all groups, it has done so especially among older Americans. Part of the explanation is the increasing size and relative wealth of America’s professional classes. For decades, college-educated, upwardly mobile Americans have typically enjoyed a widening income premium over other members of their own generation. And after they retire they also typically receive far larger Social Security benefits while also drawing on far greater assets in the form of tax-subsidized 401(k)s and other pension plans. Adding to the affluence of a substantial share of today’s retirees has been the great inflation in property values over the past generation, which leaves many with substantial windfalls in their home equity. Roughly a fifth of today’s older population belongs to this group. 

But for America’s low- and middle-income workers, the picture is far different. For them, stagnant income and downward mobility have too often been the norm since the 1970s—especially for those who lack a college education—and the older they get, the more financial insecurity they experience.

One measure of the financial precarity facing so many Americans as they age comes from the Federal Reserve. According to its last Survey of Consumer Finances, in 2022, 43 percent of households on the threshold of retirement (ages 55 to 64) had no retirement savings. Among those 65 and over, more than half had none. 

Who are these people? Many are downwardly mobile working-class Americans who lost their jobs and their pensions as America’s financial elites shuttered factories and busted unions during the past 40 years. Others saved up tidy nest eggs but lost them when medical debt forced them into bankruptcy, or when unchecked corporate monopolies snuffed out their family farms and small businesses. Still others borrowed heavily to go to college or to vocational school but could never break free of the compounding encumbrance of student debt. Still more were undone by the repeal of usury laws and the vast spread of credit card delinquency, exploding mortgages, payday lenders, and legalized gambling that wiped out the balance sheets of millions of American households following the deregulation of finance that began in the 1970s. 

According to surveys, almost half of all Americans now describe themselves as living “paycheck to paycheck.” According to a study by Bank of America of its own customers, the percentage living paycheck to paycheck tends to rise with age, peaking at nearly 30 percent among the bank’s Baby Boomer customers. 

And so we have come to a moment in which deep dependence on Social Security in old age is widespread and likely to become more so. People over 50 used to make up 11 percent of the homeless population in the early 1990s; now they account for almost 50 percent—making America’s elderly the fastest-growing segment of its unsheltered population. Today, 27 percent of current beneficiaries rely on their Social Security benefits for more than 90 percent of their monthly income. 

Even among those who are fortunate enough to have retirement savings, their nest eggs are often nowhere near sufficient to finance a secure retirement. In 2025, Vanguard, one of the most popular 401(k) plan providers, found that among its clients approaching retirement age fully half had account balances of less than $95,000. How long will a nest egg of that size last? Suppose you retire at age 65 and begin receiving this year’s average Social Security benefit of $1,800 a month. Suppose, too, that you hold your total annual spending—including rent or a mortgage with property taxes and rapidly rising premiums for Medicare coverage plus other routine costs—down to an inflation-adjusted $50,000 a year. Assuming a 3 percent rate of inflation and a 6 percent return on your investments, you will have no savings left by age 85. 

And this is assuming that you won’t be among the 70 percent of Americans who wind up needing some form of long-term nursing home care—a financial sword of Damocles not covered by Medicare. This is also assuming that Medicare itself will be there for you. On our current course, Medicare’s Hospital Insurance Fund will be running a deficit by 2027 and completely exhausted by 2033—thus forcing either an automatic 11 percent cut in Medicare spending or an infusion of new tax revenue. “The precarity of people that have plans is much greater than I think most people realize, and also isn’t really reflected in the expert debate,” says David John, a senior strategic policy adviser at AARP’s Public Policy Institute.

In debating the future of Social Security, it’s also important to learn from the failed reforms of the past. The last time the country faced a Social Security crisis was in 1983, when, thanks to a deep recession and a long history of paying out more in benefits than participants had contributed in taxes, the system was similarly faced with impending insolvency. The bailout deal struck between President Ronald Reagan and Democratic House Speaker Tip O’Neal was widely described at the time by Washington’s power elite as an “artful” compromise between raising taxes and cutting benefits. But while it was an impressive example of bipartisan cooperation by today’s standards, it turned out to be a cynical bargain that failed to ensure that the program would remain solvent beyond the retirement of the first-wave Baby Boomers.

The deal cut the benefits of Americans who were of working age at the time and subsequent generations primarily by raising their retirement age. And it raised taxes—mostly on the same people—by dramatically hiking regressive payroll tax rates and requiring an ever-rising percentage of future retirees to pay income taxes on their benefits. 

A first-order effect of this was to significantly reduce the “money worth” of the deal Social Security offered to successive generations. For example, according to the SSA, a typically one-income couple retiring in 1985 received back lifetime benefits worth 5.4 times more than the present value of the taxes they paid into the system. But thanks mostly to the tax increases and benefit cuts put in place by the 1983 deal, a similar couple retiring in 2014 was entitled to only about three times what they had paid in.

The architects of the 1983 deal insisted that this was the necessary price of saving the system. By cutting benefits and raising taxes, they said, the system would run cash surpluses for many years that would be used to build up the system’s trust fund. In that way, they promised, Social Security could “pre-fund” the cost of the Baby Boomers’ retirement as well as all younger cohorts in the pipeline. 

But this turned out to be a hollow promise. Social Security’s cash flow surpluses weren’t invested in ways that made the next generation more productive and thereby better able to sustain the cost of the system. Instead, they wound up effectively being used to underwrite other government operations, starting with things like the unfunded cost of the Reagan tax cuts and military buildup and the ever-rising cost of paying interest on the national debt. 

For a long time, Social Security’s positive cash flow helped mask the government’s overall increase in debt. Every dollar the Treasury collected from Social Security and used to fund ongoing government activities was supposed to be paid back. But per budget rules, this fact wasn’t accounted for in official measures of the deficit, so the deficits looked much smaller than they actually were, which arguably led to still more borrowing. 

There was a moment late in Bill Clinton’s administration when the country briefly debated whether to put a stop to this pretense. At the time, the government as a whole was running a cash flow surplus, and a debate broke out over what to do with the money. Clinton, in his 1999 State of the Union Address, proposed using roughly two-thirds of the future projected surpluses to shore up the finances of the Social Security trust fund. He also proposed allowing the trustees to earn higher returns by investing at least part of the new money in financial markets, much as state and local pension funds do, rather than just in Treasury notes. And he called for using 11 percent of the projected future surpluses to establish universal savings accounts that would have endowed every American with a vehicle for saving for retirement and other foreseeable needs. 

During the 2000 presidential election, Democratic candidate Al Gore took up these proposals and tried to explain them with an analogy to a “lockbox,” which he said could safely hold money set aside to pay for future benefits. But Gore struggled to get across the urgency and seriousness of the proposal, despite saying “lockbox” seven times in the first debate. A mocking Saturday Night Live skit depicted Gore (played by Darrell Hammond) as explaining, “Now one of the keys to the lockbox would be kept by the president, the other key would be sealed in a small magnetic container and placed under the bumper of the Senate majority leader’s car.”

Gore, of course, lost the election, and the incoming president, George W. Bush, used the projected surpluses as a pretext for enacting giant tax cuts and borrowing to fund the wars in Iraq and Afghanistan. In 2011, Obama, against the wishes of some in his own party, floated a “grand bargain” whereby Democrats would have gone along with a scaling back of Social Security cost-of-living adjustments in return for Republicans agreeing to raise taxes on high earners to reduce the deficit. But Republicans rejected the offer, and so both the national debt and the unfunded liabilities of Social Security’s main trust fund continued to mount. The federal government subsequently continued to borrow heavily to pay for Trump’s first round of massive tax cuts during his first term, and then for the massive stimulus spending enacted under Biden to overcome the economic effects of the COVID-19 crisis. 

Then, finally, the screw turned. The reckoning began in 2021 when a critical mass of Baby Boomers began drawing on the system. Social Security’s cash flow surplus turned into a deficit that year as the system started paying out far more money than it was taking in. By now, that deficit has grown so large that the last of the Treasury notes remaining in its main trust fund will be gone by 2033, rendering the fund insolvent and triggering massive automatic benefit cuts. 

Under that scenario, most middle-class Americans born in the mid-1950s can expect, according to estimates by the Urban Institute, to get back little more in retirement benefits than they paid in during their working years. Gen Xers and Millennials will also be affected, but it’s even worse for younger Americans. For those born between 2001 and 2010, median net lifetime taxes paid into the system will far exceed median net lifetime benefits, according to estimates by the Urban Institute. The median white member of Generation Z is projected to lose more than $200,000 on their investment. The median Black or Hispanic Gen-Zer can expect, under current law, to lose more than $86,000.

The lockbox is empty. 

What if, this time, voters were presented with an opportunity for a truly artful compromise, one that preserved the system’s long-term solvency while making both its taxes and benefits fairer and consistent with the common good? If Democrats want to put forth winning strategies in 2026 and 2028, they should be the ones championing such a course—all while keeping the go-broke date front and center and spotlighting the ways in which Republican policies have added to the crisis. 

A key challenge to any reform will be the tension built into the system between social adequacy and individual equity. From the beginning, Social Security has paid the least to those who need benefits most, and most to those who need benefits least. This pattern reflects the original political logic behind the program. FDR was keen for people to experience Social Security as a form of insurance rather than as a form of welfare. That entailed preserving the illusion that each participant paid for their own benefits, which in turn meant that people’s benefits had to at least partially reflect their previous tax contributions.

It’s a point that still needs to be weighed heavily. Certainly, it would be political folly to go straight up against today’s upper-middle-class retirees, especially when most are already receiving a far lower rate of return from Social Security than they could have earned through very safe, private investments. But there are still many measures that Democrats could take to make Social Security better serve the far greater numbers of middle-class and low-income Americans who face very real threats to their security in old age. 

Starting on the revenue side, one step would be to raise the cap on the amount of an individual’s wage income that can be taxed for Social Security. It’s currently capped at $176,100, and rises gradually under current law. But raising it more quickly could go a long way in closing Social Security’s long-term deficit. For example, just increasing the taxable maximum to $291,000 by 2029 could reduce roughly 19 percent of the trust funds’ shortfall over the next 75 years, while affecting only roughly 6 percent of earners. Such a measure would also help to redress the fact that as the rich have grown richer, more and more of their income has escaped Social Security taxes.

Another progressive reform would be to broaden Social Security’s revenue base to include financial returns, which is how most rich people make most of their money. This could be accomplished by requiring high-income filers to pay Social Security taxes on interest, dividends, royalties, capital gains, and rental income. Such taxes would force the well-to-do to bear a fairer share of the cost of financing an aging society. And, of course, there’s always the option of reversing the massive tax cuts Trump has passed for the wealthiest of the wealthy while preserving the more modest reductions his bills gave to lower- and middle-income groups. 

On the benefit side, Social Security could be made more progressive by modifying benefit formulas so that they offer higher returns to low- and middle-income workers. Cost-of-living adjustments, for example, could be recalculated to give more weight to the out-of-pocket medical and other expenses typically incurred by low- and middle-income elders. Another idea in this vein: Require fewer years of formal employment to qualify for Social Security’s minimum benefit and make the minimum higher. Senator Bernie Sanders and Democrats proposed a bill in 2023, the Social Security Expansion Act, that took up many of these tax and benefit measures. It was projected to balance the program’s budget over the next 75 years but died in committee. 

In short, there are a lot of measures Democrats could propose to save the program while also making both its financing and benefit structure fairer. But there’s also room to go beyond this by expanding the system’s tax base into new realms. These could include the use of carbon taxes, digital data taxes, or taxes on pollutants like the plastics we know are living rent-free in our brains (literally). Revenues raised from such sources could not only finance an equitable expansion of Social Security but also help build true abundance and wellness for the next generation. Wouldn’t it be swell if we saved Social Security by means that discourage socially destructive business practices while also preserving our health and that of the planet?

The idea of today’s Republican Party—aligned with leaders across both oil and tech—getting on board with any of the above may seem laughable. But if Trump plans to keep his “unbreakable commitment to protecting and strengthening” Social Security, he will have to do something credible to keep the trust funds solvent and assure his base that the checks will keep flowing. 

Lawmakers should also take aim at the policy failures around private “defined contribution” pensions and other retirement saving vehicles, which have enjoyed massive tax subsidies. Just between 2022 and 2026, they will cost the U.S. Treasury over $2.1 trillion in forgone revenue. But most of the benefits of these subsidies go to higher-income workers while millions of middle- and lower-income Americans received little or no benefit at all because they a) did not have access to a 401(k) through their employer, b) didn’t have enough income to put into one, or c) both. 

Going forward, we need universal pension plans that target their subsidies to those who most need help in building wealth rather than favoring those who already have wealth. We also need mandatory individual savings plans, like those originally proposed by Clinton, that will help less well-off members of the next generation to safely take advantage of the miracle that is compound interest. A provision of Trump’s “Big Beautiful Bill” endows newborn American children with a $1,000 “baby bond.” Though the provision is limited it derives from an idea originally championed by Democrats for providing ordinary Americans with wealth-producing assets. If properly implemented, it could evolve into a safe and universal savings vehicle that benefits all Americans throughout their lives, and that could serve as an important supplement to Social Security in old age. 

Ultimately, Democrats need an approach that goes beyond any set of purely programmatic fixes. They need to be able to tell voters that they are addressing the root causes behind why so many Americans now face insecurity in old age—many of them traceable directly to policy mistakes that both parties, but especially Republicans, made over the last 40-some years. These include a massive retreat from economic and financial regulation that wiped out the net worth of millions of Americans by enabling the spread of predatory lending in housing and education, and of predatory pricing in health care and pharmaceuticals. They include failed “free trade” policies that hollowed out the country’s industrial base and deeply eroded the bargaining power of most blue-collar workers. And they include the failure to make sufficient public investments in core industries and essential infrastructure that are the building blocks of the American Dream. Democrats can reclaim their party’s identity as a champion of the working class by taking up the cause of Social Security in its broadest and original New Deal meaning, which was to build a political economy by and for the people.