Eight years. That’s all the time Congress has to prevent a fiscal catastrophe that would impose hardship not only on America’s 68 million Social Security beneficiaries, but could potentially destabilize the entire U.S. economy. The 2025 Trustees Report released in June exceeded the most dire warnings from experts: Both the Social Security Old-Age and Survivors Insurance Trust Fund and Medicare’s Hospital Insurance Trust Fund will be depleted by 2033, triggering automatic benefit cuts that will affect every American, regardless of age. 

After the depletion of reserves in 2033, the Medicare hospital fund is forecast to be able to pay only 89% of scheduled benefits, the trustees reported. They project that the Social Security Old Age and Survivors Trust Fund will be able to pay only 77% of scheduled benefits after its reserves are depleted. 

These aren’t distant or theoretical problems. Social Security and Medicare provide more than income and healthcare to retirees – they represent the social contract between generations, the promise that decades of contributions will be rewarded with basic economic security later in life. Breaking that promise would fundamentally alter American society. “Waiting to act will entail making future adjustments much larger,” says Thomas E. MaCurdy, Senior Fellow at the Hoover Institution and Professor of Economics at Stanford. “Not acting will dump an insurmountable financial mess in our children’s laps.”

MaCurdy says the Social Security and Medicare systems are in far worse fiscal shape than the official projections suggest. Balancing Social Security’s long-term books requires a 30 percent permanent benefit cut starting now or alternatively, a rise in Social Security’s FICA payroll tax rate from its current 12.4 percent value to a whopping 17.6 percent, affecting almost every U.S. wage earner.  Fiscal circumstances for Medicare are no better. Combined, payouts from Medicare’s HI Trust Fund and its Supplementary Medical Insurance (SMI) Trust Fund already result in a nearly $500 billion annual federal budget shortfall in covering total Medicare costs.

A Program Created for a Different America
To understand the magnitude of the crisis, consider how profoundly American society has changed since President Franklin D. Roosevelt signed the Social Security Act in 1935. Life expectancy hovered around 60 years at the time, and the typical middle-class family consisted of a working husband, a homemaker wife, and two or three children. 

Nearly nine decades later, American families bear little resemblance to those of FDR’s era. Since the 1970s, 30% fewer people live with a spouse and children, according to the Pew Research Center. Divorce rates have soared, single-parent households have multiplied, and more Americans are choosing to remain unmarried. Meanwhile, life expectancy is 79.4 years, meaning beneficiaries now draw benefits for significantly longer periods than the program’s architects ever anticipated.

This demographic shift has led to a perfect storm. The program Roosevelt envisioned as “a measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age” has grown into a $2.6 trillion trust fund accounting for around 40 percent of total federal expenditures, and which in 2024 paid retirement, survivor, and disability benefits to 68.4 million Americans. And the exodus of Baby Boomers from the workforce is accelerating the trend. The Congressional Budget Office projects that Social Security beneficiaries will increase by 12 million over the next decade and another 14 million through 2055.

Ripple Effects of Inaction
Despite the urgent need for action, there’s been scant effort in Congress to fix either of these looming crises. The consequences of congressional inaction extend far beyond benefit cuts for current retirees. Current spending on Social Security and Medicare significantly contributes to the federal deficit, now exceeding $2 trillion. Interest payments required to fund the federal debt have now reached $1.2 trillion, equaling nearly 20 percent of total federal revenue. Projections predict that Social Security and Medicare expenditures will grow as a share of the federal budget, and interest payments will rapidly consume an ever-increasing share of federal revenue, according to MaCurdy.

If these trust funds become insolvent, experts predict a doubling of the poverty rate for Americans over the age of 65 and a 13.9% reduction in total income for the average older adult. But the economic devastation wouldn’t stop there. At least 40% of beneficiaries—approximately 38 million people—rely on Social Security for half or more of their income, and for more than 16 million Americans, Social Security is the sole source of income. For these individuals, a sudden 23% reduction in benefits would mean impossible choices paying for food or housing or medical care.

The broader economic implications are equally alarming. Social Security currently keeps about 20 million older people and 1 million children out of poverty, according to the Brookings Institution  Without this safety net, millions of Americans would require emergency government assistance, straining other federal and state programs. Healthcare systems would face an influx of uninsured patients as Medicare cuts force seniors to delay or forego medical treatment. “We are looking at potentially rationing care if it gets to some kind of fiscal cliff,” said Anne Montgomery, senior policy analyst at the National Committee to Preserve Social Security and Medicare, a grassroots organization that advocates for the protection of retirement benefits and was founded by FDR’s son, former congressman James Roosevelt.  

The impact of cuts in Social Security payments and rising health costs would have reverberations beyond today’s older adults. “Without other ways to make up the shortfall, more adult children could find themselves supporting parents, reducing their own ability to save for retirement and invest in their children’s education,” said Gopi Shah Goda, director of the Retirement Security Project and a senior fellow at the Brookings Institution. And, according to Andrew Biggs, senior fellow at the American Enterprise Institute, the resulting financial upheaval would also mean consumer spending – a short-term driver of economic growth – would plummet as retirees and families  slash their budgets to survive on  reduced incomes.

 Medicare’s Mounting Crisis
Medicare’s outlook has worsened since last year, with the insolvency date moved up by three years. The program faces unique challenges that make solutions even more complex than those for Social Security. Gross Medicare costs have risen from 2.2 percent of GDP in 2000 to a projected 3.9 percent in 2025, and are expected to increase further to 6.2 percent of GDP in 2050 and 6.7 percent of GDP in 2099.

When Medicare was established in 1965, average life expectancy was 70.2 years, the healthcare system was less complex, and costly medical advances were still decades away. Today’s Medicare system must contend with an aging population living longer lives while requiring increasingly expensive treatments and technologies.

The impending insolvency of the Medicare Hospital Insurance Trust Fund threatens to create a healthcare crisis that would affect all Americans, not just seniors. Hospitals already struggling with Medicare reimbursement rates would face an 11% reduction in payments, potentially forcing some to limit services or close entirely. This would strain emergency rooms, reduce access to specialized care, and increase costs for all patients as providers shift expenses to private insurers.

The Political Challenge
Although polling shows growing public concern about Social Security’s solvency, Congress has consistently failed to act. The political calculus is daunting: Any solution requires either reducing benefits for current or future retirees, increasing taxes on workers and employers, or some combination of both. Politicians fear electoral consequences, creating a dangerous game of chicken with America’s economic future. “Members of Congress don’t want to take the tough vote, and so they kick the can down the road and give their successors a tougher vote,” says Andrew Biggs, Senior Fellow at the American Enterprise Institute. “Everything we’ve done so far has been maximally designed to lead to a complete disaster.”

The Fundamental Philosophical Divide
The path forward is complicated by fundamentally different philosophies and contrasting strategies embraced  by Republicans and Democrats. These differences reflect deeper ideological splits. Many Republicans view the programs as unsustainable in their current form and believe Americans should adjust expectations about government-provided retirement security. They argue that means-testing benefits and raising retirement ages simply acknowledge demographic and economic realities.

Democrats tend to view Social Security and Medicare as sacred social contracts that should be strengthened, not weakened. They argue that asking wealthy Americans and corporations to pay more is preferable to reducing benefits for vulnerable seniors who depend on these programs for survival.

Restoring solvency – and trust in the American generational compact is “a challenging set of promises to keep,” says Anne Montgomery of  the National Committee to Preserve Social Security and Medicare. “but it’s the bedrock of economic stability and healthcare access.” Congress must act decisively and soon to make the difficult but necessary choices to preserve these vital programs for current and future generations.

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