Insufficient financing should not provoke dramatic changes to Social Security

Introduction and summary

Social Security is one of our nation’s most important social programs. About 20% of the population receives a Social Security payment each month, and for many, the program accounts for most or all of their income. Since the last substantial Social Security amendments were enacted in 1983, there have been few changes to the program. However, reform will need to be made to Social Security soon, as the program faces insolvency in less than a decade. Recently, a major report from the Progressive Policy Institute (PPI) and two books, “The Real Retirement Crisis” by Andrew Biggs from the American Enterprise Institute (AEI) and “Reimagining Social Security” by Romina Boccia and Ivane Nachkebia from the Cato Institute, recommend similar radical changes to Social Security.

While the proposals from PPI, Biggs, and Boccia and Nachkebia suggest several changes to the Social Security program, this issue brief will focus primarily on their common emphasis on moving Social Security from a wage replacement program to a flat benefit structure aimed at eliminating poverty among older adults—thereby including deep benefit cuts for many future retirees. This change in benefit structure would require substantial changes in how Social Security is financed, likely receive no support from Congressional Democrats, and undermine a program that is supported by the vast majority of the American public. Social Security remains an essential social contract with workers, a key pillar of the program that should not be changed even in the face of insufficient financing. 

Alternatively, both “Fixing Social Security: Blueprint for a Bipartisan Solution,” released in February of this year by Wendell Primus and co-authors (hereby referred to as the “Blueprint”), and a proposal published by the Bipartisan Policy Center’s (BPC) Commission on Retirement Security and Personal Savings in June 2016 illustrate that a mixture of modest benefit reductions and tax increases can restore full solvency to Social Security for many years without major structural changes to the program.

Properly measured, poverty among older adult citizens is around 6%. Reducing this low poverty rate even further should not be used as an excuse to change the fundamental mechanisms of a popular and well-designed Social Security system. Some selected changes to the SSI program and lowering Medicare premiums and other out-of-pocket health costs would be a much more effective and efficient way to lower poverty among older adults.

Brief description of the Social Security program

By almost any standard, the Social Security program is our nation’s most comprehensive social insurance program. Spending on Social Security makes it our largest federal program at 22% of the entire federal budget. Nearly 75 million individuals, or about 22% of the population, receive a Social Security check each month.

The current Social Security program is highly popular. In 2025, the AARP found that recent polls have shown Social Security to be deemed important by 96% of Americans across all age groups and political parties. Another poll by the Bipartisan Policy Center says that 93% of Americans consider Social Security to be a valuable federal program. KFF found that at least 84% of the public opposes major cuts to funding for Social Security.

At its core, Social Security serves as economic protection against death, disability, and old age. The program achieves this through wage replacement, meaning that in the event an individual dies, becomes disabled, or reaches retirement age, a Social Security benefit becomes available that replaces a portion of previous wages. Social Security replaces a larger proportion of wages for lower-wage earners and somewhat less for higher-wage earners. Wage replacement increases with a dependent spouse and the number of dependent children to meet the needs of those additional family members. Since 1983, when amendments were last passed to address Social Security financing shortfalls, the program has remained almost the same, with few legislative changes. The 1983 amendments have provided stability to the program for some 50 years.

The concepts of universal social insurance and progressive wage replacement applying to all dimensions of Social Security—retirement, disability, and survivors—should not be easily discarded. Retirement and survivors insurance have been an important component of the program since its inception in the 1930s, and disability insurance was added to Social Security in the mid-1950s.

However, it is clear from both the Office of the Chief Actuary in recent Trustees reports and reports by the Congressional Budget Office (CBO) that the Social Security program is facing financial challenges. Given the enactment of the Social Security Fairness Act in January 2025, the passage of the One Big Beautiful Bill Act (OBBBA) in July, and new economic and demographic assumptions for the United States, the 75-year actuarial deficit in the Social Security program is almost 4% of taxable payroll. This imbalance represents a huge challenge for the finances of Social Security, and if Congress does nothing, the reserves of the Social Security Trust Fund will be depleted in 2032. At that point, an across-the-board cut of 23% in benefits will be needed to match benefits to incoming revenues.¹

Three major proposals that radically alter Social Security

In the last few months, three major proposals to modify the Social Security program have been advanced: The Cato Institute’s Romina Boccia and Ivane Nachkebia’s book “Reimagining Social Security,” “The Real Retirement Crisis” by Andrew Biggs of the American Enterprise Institute, and a paper from the Progressive Policy Institute entitled “Reform that Rewards Work: A New Vision for Strengthening Social Security’s Intergenerational Compact”.² All of these proposals radically alter the structure and principles of the current Social Security program in response to the solvency crisis. The following sections of this issue brief will examine each of the three proposals in turn and discuss their implications for solving the financial issues confronting Social Security.

The Boccia and Nachkebia proposal (Cato Institute)

The proposal from Boccia and Nachkebia from the Cato Institute argues that Congress should move beyond temporary solutions to Social Security financing by:

• Raising the retirement age to reflect longer life expectancy;
• Shifting toward a flat benefit structure focused on poverty reduction;
• Reducing program costs by adopting a more accurate inflation index for cost of living;
• Expanding savings options through universal savings accounts; and
• Introducing automatic balancing mechanisms to prevent future insolvency during prolonged periods of political inaction.

The book alludes to retirement program reforms in four countries: Canada, New Zealand, Germany, and Sweden. These countries successfully modified their retirement programs in the face of similar economic and demographic changes to what the United States is experiencing today. The authors maintain that these countries put forth some important proposals that should be adopted by Congress. The entire focus of the book argues that these countries do a better job of reducing poverty and argues that the United States should move its Social Security system from a wage replacement program to more of a poverty reduction program.

The Biggs proposal (AEI)

The proposal from Andrew Biggs (AEI) would also change the current Social Security system to focus on poverty reduction. He suggests doing this by converting the current wage replacement structure into a flat benefit. The retiree benefit for someone who worked full-time for most of their career would receive a government-provided benefit equal to 28% of the national average wage for single retirees and 41% of the average wage for couples, as is done in Australia. For 2024, given that the Social Security trustees project that the national average wage would be $69,847, the Biggs’ proposal would produce a guaranteed minimum benefit of $19,557 for single retirees and $28,637 for couples. These benefits exceed the federal poverty threshold, ensuring that no American would retire into poverty.

Furthermore, these minimum benefits would increase in future years at the rate of average wage growth, whereas the federal poverty threshold only increases with inflation. Thus, the income protection aspects offered by the flat benefit that Biggs proposes would increase over time, while the cost of this proposal would be substantially less than the current Social Security program. In an apples-to-apples comparison, this reform is about 20% less expensive than current law Social Security benefits.³

While the details are not completely specified, Biggs understands that the proposal would require changes in the revenue aspects of the current Social Security system and a long transition period from the current program to his new proposal. The proposal would also modify the survivor and disability program aspects of the Social Security system.

The Ritz and Morris proposal (PPI)

The proposal from Ritz and Morris at the Progressive Policy Institute would make similarly ambitious changes to Social Security, opting to determine benefits using time in the labor force rather than earnings. However, their plan does not completely disregard earnings, since workers accrue time in the labor force by meeting an annual earnings threshold. A worker must earn 2,000 times (40 hours times 50 weeks) the fifth percentile of hourly wages (approximately $13.00 per hour in 2024) to qualify for one year of labor force participation. Earnings of less than that amount would qualify as partial credit for the year, rounded to the nearest tenth. Therefore, workers with greater earnings can qualify for a year of labor force participation in less time, but all those who meet the basic earnings threshold will have the same benefits in retirement, regardless of the quantity of their earnings beyond the threshold. In addition to changing the fundamental calculation of benefits, the authors also suggest collecting revenues for Social Security through a tax on consumption rather than earnings, arguing that the latter is inherently regressive.

In addition, Ritz and Morris include several modest changes to make Social Security more progressive and ensure the trust fund remains solvent in the future without legislative adjustments. First, the proposal would establish an overall spending target as a percentage of GDP. Benefits would be adjusted up or down periodically to ensure that this target is met and that benefits do not exceed revenues. The proposal also calls for an increase in the retirement age but includes an exception for certain low-wage workers. Ritz and Morris also propose improving survivor and disability benefits to reduce poverty, offset by reductions in spousal benefits. Finally, the proposal would subject more high-income Social Security benefits to income taxes.

Implications of all three proposals

The focus on poverty reduction of the proposals from Boccia and Nachkebia, Biggs, and Ritz and Morris results in a large departure from the core principles of the Social Security program related to wage replacement. Under the proposals, the wage replacement aspects of the program are eliminated as beneficiaries would receive nearly the same benefit, despite significant differences in earnings. Given changes to the benefit structure, the proposals would also require large changes to the revenue side of the Social Security system to make their plans functional and politically palatable.⁴ Yet, these proposals do not include any specific solutions for revenue changes.

Furthermore, Social Security has a political status unshared by other social programs due to its current core design features. Social Security is unique in that payments to the program are automatically taken as a portion of workers’ paychecks and can only be used to finance program benefits. In addition, the trust funds are not allowed to borrow money from the government’s general fund. This ensures fiscal discipline of the program by forbidding any benefit payments exceeding the amounts in the trust funds. Workers can therefore claim with justification that they have earned and paid for their benefits. Abandoning these features would destroy its essential character and undermine valid arguments that workers’ benefits reflect what they paid in taxes. Allowing benefits to vary as outlined in the proposals would almost certainly make benefits less predictable and reliable. It would also destroy fiscal discipline and the security of its benefits.⁵

Ultimately, the three proposals would shift Social Security from being a wage replacement program to a poverty reduction program. Individuals with low Social Security benefits are workers who have likely had trouble working full-time for much of their careers. Increasing benefits significantly to move these workers out of poverty means that they will receive a much higher rate of return on their contributions relative to higher-wage workers. This, in turn, makes Social Security resemble a welfare program and makes the entire program more politically susceptible to program reductions and political obstacles.

Elderly poverty is already very low, and other, more feasible ways to reduce it exist

While reducing poverty is an important policy priority, it is not the fundamental goal of Social Security. Altering the current Social Security program to focus on poverty reduction, as the PPI, Biggs, and Boccia and Nachkebia proposals do, would be an ill-advised solution, both for the purpose of reducing poverty and addressing Social Security insolvency.

Poverty among older adults is already very low. The National Experimental Well-Being Statistics (NEWS) is the most accurate measure of poverty among older adults, as shown in Table 1. The NEWS measure is an effort by the Census Bureau to use all available surveys, decennial census, administrative, and third-party data to adjust survey results to overcome under- and misreporting of income. We compare the rate of adults ages 65 and older in poverty using the Supplemental Poverty Measure (SPM) calculated by the Census Bureau from the Current Population Survey (CPS) Annual Social and Economic Supplement (ASEC) and NEWS.⁶

As shown in Table 1, when adjustments are made for underreporting of income, elderly poverty in 2020 was less than 6%. In 2021, the most recent year of available NEWS data, this rate was 6.1%.⁷ When NEWS is applied to citizens, the poverty rate becomes even lower at 5.8%.⁸ Given the low rate, changing the entire Social Security program to further reduce elderly poverty is a very unwise policy choice.

Poverty reduction is an important goal and should be accomplished in the same bill that restores solvency to Social Security, as was done in 1983. There are more feasible ways of reducing poverty through other safety net programs outside of Social Security, such as Supplemental Security Income (SSI), housing programs, and by lowering Medicare premiums for low-income older adults.

Changes to the SSI program could include an increase in federal benefit levels, an increase in SSI state supplements, and an increase in asset limits and indexing those limits to inflation. In addition, 40% of Social Security benefits should be disregarded when calculating the SSI benefit amount. Discretionary housing program amounts could be bolstered, and Medicare premiums could be made similar to Affordable Care Act (ACA) premiums. These changes would likely reduce poverty among older adults significantly.⁹ All of these changes will be described more fully in a forthcoming paper outlining policy proposals to further reduce poverty among older adults. The changes described in this paper could be easily legislated and would not involve the massive changes entailed by converting the Social Security program to a flat benefit.

Two proposals that restore solvency without radical change

In sharp contrast to the three proposals from Boccia and Nachkebia, Biggs, and Ritz and Morris, there are two proposals that restore solvency before the trust funds are exhausted in a bipartisan, common-sense way. In February 2025, Wendell Primus, Tara Watson, and Jack A. Smalligan published a blueprint for restoring Social Security solvency through an equal combination of tax increases and benefit reductions, additional program improvements, and changing policies on legal immigration. In June of 2016, the Bipartisan Policy Center released a report that fully restored solvency to Social Security without changing the wage replacement aspects of survivor, disability, or retirement benefits. Both proposals from Primus and co-authors and BPC demonstrate that solvency can be restored without fundamentally changing the Social Security program. 

A comparison of the Fixing Social Security Blueprint and the BPC plan can be found in Appendix A. While the BPC plan no longer fully restores solvency due to policy changes enacted after 2016, it could do so by modestly adjusting some policy parameters and adopting some of the provisions from the Blueprint or the recent issue brief on modifying the Blueprint to handle a larger deficit. While there are some differences between the two plans, there are many similarities. 

Unlike the three proposals with radical changes, both the Blueprint and the BPC proposal enjoy bipartisan support. Sixteen former Members of the House and Senate, split evenly between Republicans and Democrats, wrote to Congress that the Blueprint was a good place to start solvency negotiations. The BPC proposal itself was developed by former Republican and Democratic Members. 

The Blueprint and BPC plan are described in more detail below.

Fixing Social Security Blueprint

The Fixing Social Security Blueprint makes clear that Social Security’s financing challenge can be met by increasing taxes, reducing certain benefits, and increasing legal migration.

The Blueprint contains three proposals that increase revenues. These changes increase the taxable maximum to once again cover 90% of wages, raise the tax rate from 12.4% to 12.6%, and eliminate a loophole where some business owners are taking more of their compensation through capital income rather than wages.

The Blueprint also has several benefit reductions. Benefit reductions include increasing the number of working years in the benefit formula from 35 to 40, eliminating the dependent spouse benefit, increasing the retirement age by three years only for high earners, eliminating child retiree benefits, and including all benefits in taxable income for high earners.¹⁰ As we illustrate in the Fixing Social Security Blueprint, across-the-board increases in the retirement age, such as proposed by Boccia and Nachkebia, to restore solvency, are unfair. Men and women in the bottom quintile of career earnings live substantially fewer years than those in the top quintile. Given this evidence, the retirement age should only be increased for high-wage earners.

The Blueprint also has several benefit improvements. The major improvements include increasing survivor benefits, restoring the student benefit for college and accredited trade schools, adding a low-income grandparent caretaker assistance benefit, and expanding disability benefits.

The Blueprint includes several other policy changes. The Blueprint proposes to increase legal migration by a one-time boost, followed by increases of 1.5 to 3% per year, faster than the current law. Increasing legal immigration not only improves solvency but also addresses labor force issues in the health and long-term care industry. In addition, the Blueprint requires that all workers participate in Social Security. Universal coverage improves solvency as more workers, primarily state and local employees not yet covered by Social Security, would be required to pay taxes into (and ultimately receive benefits from) the program.

Since the Blueprint was published in February of 2025, the size of the problem—the difference between projected incomes and costs of the program—has grown bigger, largely because of legislation passed by Congress. A recent policy brief shows that by adjusting a few policies in the original Blueprint, solvency over 75 years can be restored even with assumptions more pessimistic than the Social Security actuary’s intermediate projection. Ultimately, Congress needs to make policy changes to stabilize Social Security’s finances. The Blueprint was crafted to demonstrate that there is a way to fix Social Security that could be acceptable to both Democrats and Republicans.

Bipartisan Policy Center (BPC) proposal

The BPC plan achieves 75-year solvency by an equal combination of tax increases and benefit reductions. 

The unique feature of this plan is its basic minimum benefit (BMB) proposal, which would only be available after an individual has attained the retirement age and would be set at different levels for single and married couples. In Social Security, the minimum benefit, known as the special minimum benefit, is a benefit floor meant to provide adequate benefits to long-career, low earners. Individuals with adjusted gross income above certain levels would have the BMB reduced or eliminated. The BPC plan also restores student benefits to age 22 for children of disabled, retired, or deceased workers, and establishes enhanced survivor benefits.

This plan contains six benefit reductions. The most significant of these reductions is increasing the retirement age and using the chained Consumer Price Index (CPI) to calculate the cost-of-living adjustment (COLA). Another significant benefit reduction provision is the use of an annualized “mini-primary insurance amount (PIA)” formula. The BPC formula also indexes historical wages to average wage growth and applies the benefit formula to each of the highest 40 years of earnings, sums those benefits, and divides by 37. This new formula rewards long careers and penalizes shorter careers. BPC argues that two workers with identical average earnings, but one has a short career with higher earnings and one with a longer career with lower earnings, should not get identical benefits. Other benefit reduction provisions that have smaller individual effects on solvency include limiting the dependent spousal benefit and subjecting more benefits to taxation.

Finally, this plan includes two significant tax increase provisions. One provision increases the taxable maximum over four years, and the other provision increases the payroll tax rate so that it equals 13.4% for 2027 and later.

Conclusion

This issue brief has described three proposals from both the left and right of the political center that attempt to fundamentally alter key principles and structures of the Social Security program, and compared them to two bipartisan, logical proposals from BPC and Wendell Primus and co-authors. The PPI, Biggs, and Boccia and Nachkebia plans all shift the focus of Social Security from wage-replacement to poverty alleviation. While efforts should be made to reduce poverty among older adults, this shift is a large mistake, as there are other, more feasible and simpler ways of doing so that do not involve the Social Security program. In fact, reducing poverty through the Social Security program is less efficient than alternative approaches, such as improving the generosity of safety net programs like SSI. 

Proposals such as those from PPI, Biggs, and Boccia and Nachkebia may actually make the necessary compromises to ensure full solvency more difficult. In particular, the Biggs, and Boccia and Nachkebia proposals draw inspiration from retirement policies in other countries. These proposals fail to contextualize the policies in the broader social insurance systems of the countries as a whole. Furthermore, although similar proposals have worked well in other countries, there is no guarantee of success in the social and economic landscape of the United States. These proposals entail huge and difficult changes from our current system, which enjoys significant political support.

The Blueprint and the BPC plans mimic previous amendments to the Social Security program in which solvency was restored with a mixture of revenue increases and benefit reductions. Due to the size of the current deficit, some other changes, such as requiring all individuals to be in the program and increasing legal immigration, would also aid in achieving solvency. These two approaches, with bipartisanship and compromise in mind, are far superior to plans that radically alter the fundamental principles of Social Security.

Appendix

Appendix A: Comparison of Blueprint and BPC Social Security solvency proposals