To save Social Security, taxes will rise and benefits will be reined in. Deal with it.

By Brett Arends

There is too much magical thinking about how to fix the program. The solution is simple.

Time to get past the magical thinking and grow up.

Some economists got together in Washington, D.C., on Wednesday and agreed that, when it comes to Social Security, we’re screwed.

Taxes will have to rise and benefits will have to be “cut” – or, at least, the expected growth curtailed. The math doesn’t lie.

We need to deal with it and start saving more, much more. Fantasies about fixing the program with supernormal economic growth, or by finding that mythical “waste, fraud and abuse” pot of gold hiding in the federal budget, are just that: fantasies. Everyone needs to grow up.

The program was hosted by the Cato Institute, which is libertarian and therefore often considered right-wing, especially by liberals. But Cato is generally reasonable, and grounded in facts. The panel included Eugene Steuerle of the centrist Urban-Brookings Tax Policy Center and Jessica Riedl of the much more conservative Manhattan Institute.

Probably the best single contribution came from Riedl, who said this: We should all stop thinking about Social Security having a “trust fund,” because it doesn’t exist and never did.

“The trust fund is not a traditional savings fund with money available to pay benefits,” she said. “It’s essentially an accounting mechanism. It says that because Social Security ran a … surplus of $3 trillion in its first 26 years since the ’83 reforms, it’s allowed to run a deficit of $3 trillion afterwards.”

She added: “It’s not that Congress raided the trust fund and stole the $3 trillion; it’s that the trust fund was never designed as a savings account to save the $3 trillion.”

The Social Security accounting deficit, meaning the “unfunded obligation” that the trustees currently attribute to the program for the next 75 years, is now in excess of $25 trillion, according to last year’s trustees report. That figure is not included in the “official” national debt, which recently hit $31 trillion. Combined, at $56 trillion, they are equal to 175% of annual gross domestic product, a ratio far beyond anything ever before seen.

And that’s before you include similar problems at Medicare, whose trustees report another $60 trillion in unfunded obligations, which itself would be around 200% of GDP.

Good times!

As the Tax Policy Center’s Steuerle pointed out, the core issue is that programs for the elderly are simply growing faster than the economy and are expected to keep doing so as the population ages.

And, as a wise person once said, if something can’t continue indefinitely, it won’t.

One popular idea for fixing the program is to eliminate the income cap on Social Security contributions. At the moment the 12.4% Social Security payroll tax is levied on incomes up to $184,500 a year. President Joe Biden wanted also to impose the tax on incomes over $400,000, but it went nowhere on Capitol Hill.

But there are some issues raised by that proposal. One is pretty simple. If you levy a 12.4% payroll tax on high incomes, and combine that with the top 37% rate of regular income tax, plus 2.9% Medicare tax, you will have a scenario where high earners end up paying a marginal tax rate of 52.3%. Throw in state, city or local taxes and for many the figure will be over 60%.

It doesn’t matter what you think of this morally or ethically. Taxes at that level stop working well. At that level higher income taxes stop generating as much revenue as hoped because they depress economic activity and tax compliance.

The one mercy in all this is that, even in the current Congress, nobody is seriously suggesting slashing Social Security benefits across the board. Talk to experts in Washington who study this issue, and pretty much everyone agrees that the likeliest scenario involves some higher taxes along with caps on benefits for higher earners. Younger people should expect to work past the age of 67, the current “full retirement age,” and should be saving as much as they can.

One dog that didn’t bark at the conference, and continues to stun by its silence, is that of a wealth or asset tax. The most egregious gap in the U.S. tax code right now isn’t that people earning $1 million or $10 million or even $100 million are “only” paying 39.4% marginal tax rates but that people with billions of dollars – sometimes tens of billions – are sometimes paying hardly any tax at all.

(Indeed negative tax rates, meaning you get out more than you put in, sometimes occur because would-be taxpayers’ companies bank billions from the federal government while the owner or CEO pays in bupkis.)

You do not need to be a Maoist to think this situation makes no sense. (And I wonder why so many libertarians and conservatives are still determined to defend this absurd situation.)

An asset tax is far outside the so-called Overton Window of policy ideas that people are able to discuss reasonably. There is no reason for that. We pay local asset taxes on our homes.

According to the Federal Reserve, U.S. households are sitting on a total of $195 trillion in assets.

The wealth right at the top is staggering. The richest 0.1% of families have doubled their wealth just since the pandemic. They now own six times as much, in total, as the poorest 50%.

Yes, really. Out of a random, representative group of 1,000 Americans, the richest person would own six times as much as the least-well-off 500 put together.

The ratio has never been that high in recorded history. Not even close.

A mere 1% tax on all households’ assets would generate nearly $2 trillion a year. That alone would close two-thirds of Social Security’s unfunded obligation over the next 10 years. As equity typically earns about 9% a year, that asset tax would constitute a marginal tax rate on the very richest of just 11% of their average annual gain.

And if even that felt too onerous, they could console themselves that everyone is paying 1%, even the 10-year-old who made $100 selling lemonade.

But unless or until the Overton Window moves, asset taxes won’t be on the agenda. So benefit growth will need to be reined in, while some taxes will rise – on the incomes of working people. Be prepared.

-Brett Arends

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

05-07-26 1043ET

Copyright (c) 2026 Dow Jones & Company, Inc.