The release of the 2026 Social Security Trustees Report got the usual suspects (a.k.a. “very serious people”) genuflecting about the large projected shortfall. As of 2034, the program is projected to be unable to pay full benefits. This would mean a 22 percent cut in benefits if no additional revenue is added.

There are three points worth making here.

As an economic matter, the projected depletion of the trust fund and resulting shortfall in the program means nothing;

The main reason for the projected shortfall is the upward redistribution of income over the last half-century;

The projected shortfall is far less money than the increase in military spending that Donald Trump is requesting for his 2027 budget.

Trust Fund Accounting

On the first point, the spending to repay the bonds held from the trust fund in 2033 comes from the Treasury. Its impact on the economy would be the same as the spending in 2034, when the trust fund no longer holds any bonds.

There is an issue that the law gives the program a claim to the funds needed to repay the bonds it holds. Social Security does not have a claim to the money needed to pay full benefits once the last bonds are sold and the trust fund is depleted.

This is an important legal point, but from an economic standpoint, it is money from the Treasury in both cases. If the country could afford to pay full benefits in 2033 when the trust fund held bonds. It can afford to pay full benefits after it has sold all its bonds, however the law would need to be changed.

Upward Redistribution Hurt Social Security’s Finances

In 1982, the last time the program had a major overhaul, just 10 percent of wage income went to high wage earners whose income escaped taxation by being over the cap (currently around $185,000) for wages subject to the 12.4 percent Social Security tax. In the last quarter century, close to 17 percent of wage income went over the cap.

This upward redistribution of wage income, coupled with the redistribution from wages to profits in the last quarter century, has substantially reduced the amount of revenue going into the trust fund. It shouldn’t be surprising that the people who engineered the upward redistribution of the last half-century — through trade policy, stronger patent and........

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